Here's What To Make Of E-SUPPORTLINK's (TSE:2493) Decelerating Rates Of Return

There are a few key trends to look for if we want to identify the next 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating E-SUPPORTLINK (TSE:2493), we don't think it's current trends fit the mold of a multi-bagger.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for E-SUPPORTLINK, this is the formula:

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

0.036 = JP¥149m ÷ (JP¥5.2b - JP¥1.0b) (Based on the trailing twelve months to February 2024).

So, E-SUPPORTLINK has an ROCE of 3.6%. Ultimately, that's a low return and it under-performs the Professional Services industry average of 16%.

View our latest analysis for E-SUPPORTLINK

Historical performance is a great place to start when researching a stock so above you can see the gauge for E-SUPPORTLINK's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of E-SUPPORTLINK.

How Are Returns Trending?

Over the past five years, E-SUPPORTLINK's ROCE and capital employed have both remained mostly flat. 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. So don't be surprised if E-SUPPORTLINK doesn't end up being a multi-bagger in a few years time.

Our Take On E-SUPPORTLINK's ROCE

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

If you want to know some of the risks facing E-SUPPORTLINK we've found 3 warning signs (1 is concerning!) that you should be aware of before investing here.

While E-SUPPORTLINK 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.