McDonald's Holdings Company (Japan) (TSE:2702) Has More To Do To Multiply In Value Going Forward

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. So, when we ran our eye over McDonald's Holdings Company (Japan)'s (TSE:2702) trend of ROCE, we liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on McDonald's Holdings Company (Japan) is:

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

0.19 = JP¥47b ÷ (JP¥303b - JP¥60b) (Based on the trailing twelve months to June 2024).

So, McDonald's Holdings Company (Japan) has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Hospitality industry average of 9.8% it's much better.

See our latest analysis for McDonald's Holdings Company (Japan)

Above you can see how the current ROCE for McDonald's Holdings Company (Japan) compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering McDonald's Holdings Company (Japan) for free.

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 19% for the last five years, and the capital employed within the business has risen 52% in that time. 19% is a pretty standard return, and it provides some comfort knowing that McDonald's Holdings Company (Japan) 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.

The Bottom Line On McDonald's Holdings Company (Japan)'s ROCE

The main thing to remember is that McDonald's Holdings Company (Japan) has proven its ability to continually reinvest at respectable rates of return. In light of this, the stock has only gained 33% over the last five years for shareholders who have owned the stock in this period. So to determine if McDonald's Holdings Company (Japan) is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

McDonald's Holdings Company (Japan) could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 2702 on our platform quite valuable.

While McDonald's Holdings Company (Japan) 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.