DAIEISANGYOLtd (FKSE:2974) Hasn't Managed To Accelerate Its Returns

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 DAIEISANGYOLtd (FKSE:2974) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for DAIEISANGYOLtd:

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

0.11 = JP¥1.4b ÷ (JP¥31b - JP¥19b) (Based on the trailing twelve months to December 2020).

Therefore, DAIEISANGYOLtd has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Consumer Durables industry average of 8.4% it's much better.

View our latest analysis for DAIEISANGYOLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for DAIEISANGYOLtd's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of DAIEISANGYOLtd, check out these free graphs here.

How Are Returns Trending?

There hasn't been much to report for DAIEISANGYOLtd's returns and its level of capital employed because both metrics have been steady for the past three years. 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 DAIEISANGYOLtd in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

On a side note, DAIEISANGYOLtd's current liabilities are still rather high at 61% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

We can conclude that in regards to DAIEISANGYOLtd's returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 29% over the last year, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

On a final note, we found 4 warning signs for DAIEISANGYOLtd (1 doesn't sit too well with us) you should be aware of.

While DAIEISANGYOLtd 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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