Returns On Capital At Create SD Holdings (TSE:3148) Have Hit The Brakes

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Create SD Holdings (TSE:3148) looks decent, right now, so lets see what the trend of returns can tell us.

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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. Analysts use this formula to calculate it for Create SD Holdings:

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

0.14 = JP¥21b ÷ (JP¥225b - JP¥79b) (Based on the trailing twelve months to November 2024).

Therefore, Create SD Holdings has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 8.8% generated by the Consumer Retailing industry.

See our latest analysis for Create SD Holdings

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

What Can We Tell From Create SD Holdings' ROCE Trend?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 14% and the business has deployed 68% more capital into its operations. Since 14% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

In Conclusion...

To sum it up, Create SD Holdings has simply been reinvesting capital steadily, at those decent rates of return. However, over the last five years, the stock has only delivered a 5.0% return to shareholders who held over that period. So to determine if Create SD Holdings is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Create SD Holdings does have some risks though, and we've spotted 1 warning sign for Create SD Holdings that you might be interested in.

While Create SD 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.