Should We Be Excited About The Trends Of Returns At Osaka Yuka Industry (TYO:4124)?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Osaka Yuka Industry (TYO:4124), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Osaka Yuka Industry, this is the formula:

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

0.10 = JP¥180m ÷ (JP¥1.9b - JP¥141m) (Based on the trailing twelve months to December 2020).

So, Osaka Yuka Industry has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 6.4% generated by the Machinery industry.

See our latest analysis for Osaka Yuka Industry

Above you can see how the current ROCE for Osaka Yuka Industry compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Osaka Yuka Industry.

How Are Returns Trending?

Over the past , Osaka Yuka Industry's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Osaka Yuka Industry to be a multi-bagger going forward.

In Conclusion...

In a nutshell, Osaka Yuka Industry has been trudging along with the same returns from the same amount of capital over the last . And investors appear hesitant that the trends will pick up because the stock has fallen 43% in the last three years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One more thing, we've spotted 4 warning signs facing Osaka Yuka Industry that you might find interesting.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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