The Returns At Integrated Design & Engineering HoldingsLtd (TSE:9161) Aren't Growing

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Integrated Design & Engineering HoldingsLtd (TSE:9161), it didn't seem to tick all of these boxes.

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

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 Integrated Design & Engineering HoldingsLtd:

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

0.078 = JP¥10b ÷ (JP¥233b - JP¥99b) (Based on the trailing twelve months to March 2024).

Thus, Integrated Design & Engineering HoldingsLtd has an ROCE of 7.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.9%.

View our latest analysis for Integrated Design & Engineering HoldingsLtd

Above you can see how the current ROCE for Integrated Design & Engineering HoldingsLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Integrated Design & Engineering HoldingsLtd .

How Are Returns Trending?

There are better returns on capital out there than what we're seeing at Integrated Design & Engineering HoldingsLtd. The company has consistently earned 7.8% for the last five years, and the capital employed within the business has risen 57% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Another thing to note, Integrated Design & Engineering HoldingsLtd has a high ratio of current liabilities to total assets of 43%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Integrated Design & Engineering HoldingsLtd's ROCE

In conclusion, Integrated Design & Engineering HoldingsLtd has been investing more capital into the business, but returns on that capital haven't increased. Although the market must be expecting these trends to improve because the stock has gained 60% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Integrated Design & Engineering HoldingsLtd does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is significant...

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.

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