Maruhachi Warehouse Company (TSE:9313) Could Be At Risk Of Shrinking As A Company

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. In light of that, from a first glance at Maruhachi Warehouse Company (TSE:9313), we've spotted some signs that it could be struggling, so let's investigate.

What Is 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. To calculate this metric for Maruhachi Warehouse Company, this is the formula:

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

0.036 = JP¥608m ÷ (JP¥18b - JP¥1.5b) (Based on the trailing twelve months to May 2024).

Thus, Maruhachi Warehouse Company has an ROCE of 3.6%. 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 Maruhachi Warehouse Company

Historical performance is a great place to start when researching a stock so above you can see the gauge for Maruhachi Warehouse Company's ROCE against it's prior returns. If you'd like to look at how Maruhachi Warehouse Company has performed in the past in other metrics, you can view this free graph of Maruhachi Warehouse Company's past earnings, revenue and cash flow.

What Can We Tell From Maruhachi Warehouse Company's ROCE Trend?

We are a bit worried about the trend of returns on capital at Maruhachi Warehouse Company. Unfortunately the returns on capital have diminished from the 5.1% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. 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. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Maruhachi Warehouse Company becoming one if things continue as they have.

The Bottom Line

In summary, it's unfortunate that Maruhachi Warehouse Company is generating lower returns from the same amount of capital. Yet despite these concerning fundamentals, the stock has performed strongly with a 54% return over the last five years, so investors appear very optimistic. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

Maruhachi Warehouse Company does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is potentially serious...

While Maruhachi Warehouse Company 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.

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