Here's What's Concerning About Komatsu Wall Industry's (TSE:7949) Returns On Capital

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. Having said that, after a brief look, Komatsu Wall Industry (TSE:7949) we aren't filled with optimism, but let's investigate further.

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Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Komatsu Wall Industry is:

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

0.076 = JP¥3.0b ÷ (JP¥44b - JP¥5.0b) (Based on the trailing twelve months to December 2024).

So, Komatsu Wall Industry has an ROCE of 7.6%. On its own, that's a low figure but it's around the 7.5% average generated by the Building industry.

Check out our latest analysis for Komatsu Wall Industry

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Komatsu Wall Industry's past further, check out this free graph covering Komatsu Wall Industry's past earnings, revenue and cash flow.

What Does the ROCE Trend For Komatsu Wall Industry Tell Us?

In terms of Komatsu Wall Industry's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 9.7% one year ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Komatsu Wall Industry becoming one if things continue as they have.

Our Take On Komatsu Wall Industry's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Since the stock has skyrocketed 146% over the last five years, it looks like investors have high expectations of the stock. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

While Komatsu Wall Industry doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for 7949 on our platform.

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

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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.