If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. However, after investigating Yuasa Funashoku (TSE:8006), we don't think it's current trends fit the mold of a multi-bagger.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Yuasa Funashoku is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.046 = JP¥1.9b ÷ (JP¥64b - JP¥24b) (Based on the trailing twelve months to March 2024).
So, Yuasa Funashoku has an ROCE of 4.6%. In absolute terms, that's a low return and it also under-performs the Consumer Retailing industry average of 9.1%.
View our latest analysis for Yuasa Funashoku
Historical performance is a great place to start when researching a stock so above you can see the gauge for Yuasa Funashoku's ROCE against it's prior returns. If you're interested in investigating Yuasa Funashoku's past further, check out this free graph covering Yuasa Funashoku's past earnings, revenue and cash flow.
The Trend Of ROCE
In terms of Yuasa Funashoku's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 4.6% for the last five years, and the capital employed within the business has risen 24% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
The Bottom Line On Yuasa Funashoku's ROCE
In conclusion, Yuasa Funashoku has been investing more capital into the business, but returns on that capital haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 6.8% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.
If you'd like to know about the risks facing Yuasa Funashoku, we've discovered 3 warning signs that you should be aware of.
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
About TSE:8006
Flawless balance sheet average dividend payer.
