Here's What To Make Of REFINVERSE Group's (TSE:7375) Decelerating Rates Of Return

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at REFINVERSE Group (TSE:7375), it didn't seem to tick all of these boxes.

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. The formula for this calculation on REFINVERSE Group is:

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

0.071 = JP¥179m ÷ (JP¥3.6b - JP¥1.0b) (Based on the trailing twelve months to December 2023).

Thus, REFINVERSE Group has an ROCE of 7.1%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 8.9%.

View our latest analysis for REFINVERSE Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for REFINVERSE Group'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 REFINVERSE Group.

What Does the ROCE Trend For REFINVERSE Group Tell Us?

There hasn't been much to report for REFINVERSE Group's returns and its level of capital employed because both metrics have been steady for the past one year. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if REFINVERSE Group doesn't end up being a multi-bagger in a few years time.

The Bottom Line On REFINVERSE Group's ROCE

In a nutshell, REFINVERSE Group has been trudging along with the same returns from the same amount of capital over the last one year. And investors appear hesitant that the trends will pick up because the stock has fallen 58% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

REFINVERSE Group does have some risks, we noticed 4 warning signs (and 1 which is a bit unpleasant) we think you should know about.

While REFINVERSE Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.