What We Make Of B-R 31 Ice CreamLtd's (TYO:2268) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. With that in mind, we've noticed some promising trends at B-R 31 Ice CreamLtd (TYO:2268) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

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 B-R 31 Ice CreamLtd:

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

0.066 = JP¥823m ÷ (JP¥17b - JP¥4.8b) (Based on the trailing twelve months to September 2020).

Therefore, B-R 31 Ice CreamLtd has an ROCE of 6.6%. On its own, that's a low figure but it's around the 7.8% average generated by the Hospitality industry.

See our latest analysis for B-R 31 Ice CreamLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for B-R 31 Ice CreamLtd's ROCE against it's prior returns. If you'd like to look at how B-R 31 Ice CreamLtd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For B-R 31 Ice CreamLtd Tell Us?

We're delighted to see that B-R 31 Ice CreamLtd is reaping rewards from its investments and has now broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 6.6% on its capital. While returns have increased, the amount of capital employed by B-R 31 Ice CreamLtd has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

Our Take On B-R 31 Ice CreamLtd's ROCE

In summary, we're delighted to see that B-R 31 Ice CreamLtd has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 0.9% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

While B-R 31 Ice CreamLtd looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether 2268 is currently trading for a fair price.

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. 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.
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