JSHLtd's (TSE:150A) Returns Have Hit A Wall

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at JSHLtd's (TSE:150A) ROCE trend, we were pretty happy with what we saw.

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What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for JSHLtd:

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

0.10 = JP¥208m ÷ (JP¥2.5b - JP¥529m) (Based on the trailing twelve months to March 2024).

Thus, JSHLtd has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 9.1% generated by the Consumer Services industry.

See our latest analysis for JSHLtd

Above you can see how the current ROCE for JSHLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for JSHLtd .

What Can We Tell From JSHLtd's ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has consistently earned 10% for the last two years, and the capital employed within the business has risen 124% in that time. 10% is a pretty standard return, and it provides some comfort knowing that JSHLtd has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

One more thing to note, even though ROCE has remained relatively flat over the last two years, the reduction in current liabilities to 21% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

In Conclusion...

To sum it up, JSHLtd has simply been reinvesting capital steadily, at those decent rates of return. However, over the last year, the stock hasn't provided much growth to shareholders in the way of total returns. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

On a final note, we've found 4 warning signs for JSHLtd that we think you should be aware of.

While JSHLtd 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.