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The Returns On Capital At Hikari Tsushin (TSE:9435) Don't Inspire Confidence

Simply Wall St · 1d ago

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Hikari Tsushin (TSE:9435) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Hikari Tsushin is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.05 = JP¥105b ÷ (JP¥2.6t - JP¥477b) (Based on the trailing twelve months to September 2025).

Therefore, Hikari Tsushin has an ROCE of 5.0%. Ultimately, that's a low return and it under-performs the Industrials industry average of 7.0%.

See our latest analysis for Hikari Tsushin

roce
TSE:9435 Return on Capital Employed December 7th 2025

Above you can see how the current ROCE for Hikari Tsushin compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Hikari Tsushin for free.

The Trend Of ROCE

When we looked at the ROCE trend at Hikari Tsushin, we didn't gain much confidence. Around five years ago the returns on capital were 9.3%, but since then they've fallen to 5.0%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line

While returns have fallen for Hikari Tsushin in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. Furthermore the stock has climbed 82% over the last five years, it would appear that investors are upbeat about the future. So should these growth trends continue, we'd be optimistic on the stock going forward.

On a separate note, we've found 1 warning sign for Hikari Tsushin you'll probably want to know about.

While Hikari Tsushin isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.