Returns On Capital At IBOKINLtd (TYO:5699) Have Hit The Brakes

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. In light of that, when we looked at IBOKINLtd (TYO:5699) and its ROCE trend, we weren't exactly thrilled.

What is 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. The formula for this calculation on IBOKINLtd is:

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

0.09 = JP¥328m ÷ (JP¥5.2b - JP¥1.5b) (Based on the trailing twelve months to December 2020).

So, IBOKINLtd has an ROCE of 9.0%. In absolute terms, that's a low return but it's around the Commercial Services industry average of 8.3%.

See our latest analysis for IBOKINLtd

Above you can see how the current ROCE for IBOKINLtd 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 IBOKINLtd here for free.

How Are Returns Trending?

The returns on capital haven't changed much for IBOKINLtd in recent years. Over the past three years, ROCE has remained relatively flat at around 9.0% and the business has deployed 43% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

In Conclusion...

In conclusion, IBOKINLtd 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 41% over the last year. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

IBOKINLtd does have some risks though, and we've spotted 2 warning signs for IBOKINLtd that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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