Returns On Capital At McDonald's Holdings Company (Japan) (TSE:2702) Have Hit The Brakes

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of McDonald's Holdings Company (Japan) (TSE:2702) looks decent, right now, so lets see what the trend of returns can tell us.

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. To calculate this metric for McDonald's Holdings Company (Japan), this is the formula:

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

0.17 = JP¥41b ÷ (JP¥311b - JP¥77b) (Based on the trailing twelve months to December 2023).

So, McDonald's Holdings Company (Japan) has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Hospitality industry average of 9.7% 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 to see what analysts are forecasting going forward, you should check out our free analyst report for McDonald's Holdings Company (Japan) .

So How Is McDonald's Holdings Company (Japan)'s ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has consistently earned 17% for the last five years, and the capital employed within the business has risen 51% in that time. Since 17% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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. However, over the last five years, the stock has only delivered a 38% return to shareholders who held over that period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

If you're still interested in McDonald's Holdings Company (Japan) it's worth checking out our FREE intrinsic value approximation for 2702 to see if it's trading at an attractive price in other respects.

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.