Returns On Capital At EnBio Holdings (TSE:6092) Have Stalled

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 EnBio Holdings (TSE:6092) and its ROCE trend, we weren't exactly thrilled.

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. To calculate this metric for EnBio Holdings, this is the formula:

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

0.054 = JP¥816m ÷ (JP¥19b - JP¥4.1b) (Based on the trailing twelve months to March 2024).

So, EnBio Holdings has an ROCE of 5.4%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 9.2%.

View our latest analysis for EnBio Holdings

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 EnBio Holdings' past further, check out this free graph covering EnBio Holdings' past earnings, revenue and cash flow.

What Can We Tell From EnBio Holdings' ROCE Trend?

Things have been pretty stable at EnBio Holdings, with its capital employed and returns on that capital staying somewhat the same for the last five years. 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. With that in mind, unless investment picks up again in the future, we wouldn't expect EnBio Holdings to be a multi-bagger going forward.

Our Take On EnBio Holdings' ROCE

We can conclude that in regards to EnBio Holdings' returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 43% over the last five years, investors may not be too optimistic on this trend improving either. 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.

If you want to know some of the risks facing EnBio Holdings we've found 2 warning signs (1 can't be ignored!) that you should be aware of before investing here.

While EnBio 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com