Some Investors May Be Worried About BANDAI NAMCO Holdings' (TSE:7832) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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.

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

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 BANDAI NAMCO Holdings is:

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

0.14 = JP¥107b ÷ (JP¥973b - JP¥237b) (Based on the trailing twelve months to June 2024).

Therefore, BANDAI NAMCO Holdings has an ROCE of 14%. By itself that's a normal return on capital and it's in line with the industry's average returns of 14%.

View our latest analysis for BANDAI NAMCO Holdings

In the above chart we have measured BANDAI NAMCO Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for BANDAI NAMCO Holdings .

What Does the ROCE Trend For BANDAI NAMCO Holdings Tell Us?

On the surface, the trend of ROCE at BANDAI NAMCO Holdings doesn't inspire confidence. To be more specific, ROCE has fallen from 20% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On BANDAI NAMCO Holdings' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that BANDAI NAMCO Holdings is reinvesting for growth and has higher sales as a result. And the stock has followed suit returning a meaningful 70% to shareholders over the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

One more thing, we've spotted 1 warning sign facing BANDAI NAMCO Holdings that you might find interesting.

While BANDAI NAMCO Holdings 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.