KimuraLtd (TSE:7461) Has More To Do To Multiply In Value Going Forward

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. However, after investigating KimuraLtd (TSE:7461), we don't think it's current trends fit the mold of a multi-bagger.

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 KimuraLtd is:

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

0.087 = JP¥1.8b ÷ (JP¥27b - JP¥6.1b) (Based on the trailing twelve months to March 2024).

So, KimuraLtd has an ROCE of 8.7%. In absolute terms, that's a low return but it's around the Trade Distributors industry average of 7.3%.

Check out our latest analysis for KimuraLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for KimuraLtd's ROCE against it's prior returns. If you're interested in investigating KimuraLtd's past further, check out this free graph covering KimuraLtd's past earnings, revenue and cash flow.

What Does the ROCE Trend For KimuraLtd Tell Us?

Things have been pretty stable at KimuraLtd, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect KimuraLtd to be a multi-bagger going forward.

Our Take On KimuraLtd's ROCE

We can conclude that in regards to KimuraLtd's returns on capital employed and the trends, there isn't much change to report on. Unsurprisingly then, the total return to shareholders over the last five years has been flat. Therefore based on the analysis done in this article, we don't think KimuraLtd has the makings of a multi-bagger.

One more thing, we've spotted 1 warning sign facing KimuraLtd that you might find interesting.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com