Ichiken (TSE:1847) Has More To Do To Multiply In Value Going Forward

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Ichiken (TSE:1847), it didn't seem to tick all of these boxes.

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Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Ichiken:

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

0.17 = JP¥6.9b ÷ (JP¥68b - JP¥27b) (Based on the trailing twelve months to March 2025).

Thus, Ichiken has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Construction industry average of 9.8% it's much better.

View our latest analysis for Ichiken

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ichiken's ROCE against it's prior returns. If you'd like to look at how Ichiken has performed in the past in other metrics, you can view this free graph of Ichiken's past earnings, revenue and cash flow.

What Can We Tell From Ichiken's ROCE Trend?

Over the past , Ichiken'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 Ichiken to be a multi-bagger going forward.

Another thing to note, Ichiken has a high ratio of current liabilities to total assets of 40%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Ichiken's ROCE

In a nutshell, Ichiken has been trudging along with the same returns from the same amount of capital over the last . Yet to long term shareholders the stock has gifted them an incredible 229% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One more thing, we've spotted 2 warning signs facing Ichiken that you might find interesting.

While Ichiken may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.