Returns On Capital At BANDAI NAMCO Holdings (TSE:7832) Paint A Concerning Picture

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at BANDAI NAMCO Holdings (TSE:7832) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on BANDAI NAMCO Holdings is:

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

0.12 = JP¥89b ÷ (JP¥959b - JP¥231b) (Based on the trailing twelve months to December 2023).

Therefore, BANDAI NAMCO Holdings has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Leisure industry average of 13%.

View our latest analysis for BANDAI NAMCO Holdings

Above you can see how the current ROCE for BANDAI NAMCO Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering BANDAI NAMCO Holdings for free.

How Are Returns Trending?

On the surface, the trend of ROCE at BANDAI NAMCO Holdings doesn't inspire confidence. Over the last five years, returns on capital have decreased to 12% from 21% five years ago. However it looks like BANDAI NAMCO Holdings might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

To conclude, we've found that BANDAI NAMCO Holdings is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 79% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One more thing to note, we've identified 2 warning signs with BANDAI NAMCO Holdings and understanding them should be part of your investment process.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.