Twinbird (TSE:6897) Will Be Looking To Turn Around Its Returns

When researching a stock for investment, what can tell us that the company is in decline? 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. Basically the company is earning less on its investments and it is also reducing its total assets. On that note, looking into Twinbird (TSE:6897), we weren't too upbeat about how things were going.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Twinbird, this is the formula:

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

0.0044 = JP¥41m ÷ (JP¥11b - JP¥1.9b) (Based on the trailing twelve months to February 2023).

So, Twinbird has an ROCE of 0.4%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 6.6%.

See our latest analysis for Twinbird

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

What Can We Tell From Twinbird's ROCE Trend?

There is reason to be cautious about Twinbird, given the returns are trending downwards. To be more specific, the ROCE was 2.2% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Twinbird becoming one if things continue as they have.

The Key Takeaway

In summary, it's unfortunate that Twinbird is generating lower returns from the same amount of capital. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

If you want to know some of the risks facing Twinbird we've found 5 warning signs (2 make us uncomfortable!) that you should be aware of before investing here.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com