Slowing Rates Of Return At Keihan Holdings (TSE:9045) Leave Little Room For Excitement

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Keihan Holdings (TSE:9045) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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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. The formula for this calculation on Keihan Holdings is:

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

0.064 = JP¥42b ÷ (JP¥853b - JP¥195b) (Based on the trailing twelve months to December 2024).

Therefore, Keihan Holdings has an ROCE of 6.4%. On its own, that's a low figure but it's around the 7.2% average generated by the Industrials industry.

See our latest analysis for Keihan Holdings

Above you can see how the current ROCE for Keihan Holdings 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 Keihan Holdings for free.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for Keihan Holdings' returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Keihan Holdings doesn't end up being a multi-bagger in a few years time.

In Conclusion...

In a nutshell, Keihan Holdings has been trudging along with the same returns from the same amount of capital over the last five years. And in the last five years, the stock has given away 28% so the market doesn't look too hopeful on these trends strengthening any time soon. 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.

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

While Keihan Holdings 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.