Be Wary Of Fujicopian (TSE:7957) And Its Returns On Capital

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. So after glancing at the trends within Fujicopian (TSE:7957), we weren't too hopeful.

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Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Fujicopian is:

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

0.0057 = JP¥78m ÷ (JP¥16b - JP¥2.6b) (Based on the trailing twelve months to March 2025).

Thus, Fujicopian has an ROCE of 0.6%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 9.8%.

View our latest analysis for Fujicopian

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

What The Trend Of ROCE Can Tell Us

There is reason to be cautious about Fujicopian, given the returns are trending downwards. About five years ago, returns on capital were 2.1%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Fujicopian to turn into a multi-bagger.

Our Take On Fujicopian's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Yet despite these concerning fundamentals, the stock has performed strongly with a 46% return over the last five years, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

Fujicopian does have some risks, we noticed 4 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

While Fujicopian 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.