The Returns At CookbizLtd (TSE:6558) Aren't Growing

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at CookbizLtd (TSE:6558) and its ROCE trend, we weren't exactly thrilled.

Understanding 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 CookbizLtd is:

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

0.12 = JP¥291m ÷ (JP¥3.4b - JP¥981m) (Based on the trailing twelve months to November 2023).

So, CookbizLtd has an ROCE of 12%. In absolute terms, that's a pretty standard return but compared to the Professional Services industry average it falls behind.

Check out our latest analysis for CookbizLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for CookbizLtd's ROCE against it's prior returns. If you're interested in investigating CookbizLtd's past further, check out this free graph covering CookbizLtd's past earnings, revenue and cash flow.

The Trend Of ROCE

Over the past , CookbizLtd's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at CookbizLtd in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

In Conclusion...

In a nutshell, CookbizLtd has been trudging along with the same returns from the same amount of capital over the last . Since the stock has declined 18% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think CookbizLtd has the makings of a multi-bagger.

CookbizLtd does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those are significant...

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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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.