Here's What's Concerning About Sapporo Clinical Laboratory's (TSE:9776) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Although, when we looked at Sapporo Clinical Laboratory (TSE:9776), it didn't seem to tick all of these boxes.

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What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Sapporo Clinical Laboratory:

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

0.056 = JP¥750m ÷ (JP¥17b - JP¥3.3b) (Based on the trailing twelve months to September 2025).

So, Sapporo Clinical Laboratory has an ROCE of 5.6%. Ultimately, that's a low return and it under-performs the Consumer Retailing industry average of 9.4%.

View our latest analysis for Sapporo Clinical Laboratory

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Sapporo Clinical Laboratory has performed in the past in other metrics, you can view this free graph of Sapporo Clinical Laboratory's past earnings, revenue and cash flow.

What Does the ROCE Trend For Sapporo Clinical Laboratory Tell Us?

When we looked at the ROCE trend at Sapporo Clinical Laboratory, we didn't gain much confidence. Around five years ago the returns on capital were 9.2%, but since then they've fallen to 5.6%. However it looks like Sapporo Clinical Laboratory 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.

In Conclusion...

In summary, Sapporo Clinical Laboratory is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors may be recognizing these trends since the stock has only returned a total of 14% 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 more about Sapporo Clinical Laboratory, we've spotted 3 warning signs, and 2 of them are concerning.

While Sapporo Clinical Laboratory 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.