Returns On Capital At JFLA Holdings (TSE:3069) Have Stalled

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think JFLA Holdings (TSE:3069) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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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. The formula for this calculation on JFLA Holdings is:

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

0.038 = JP¥1.2b ÷ (JP¥42b - JP¥11b) (Based on the trailing twelve months to December 2024).

So, JFLA Holdings has an ROCE of 3.8%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 9.8%.

See our latest analysis for JFLA Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for JFLA Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of JFLA Holdings .

What Can We Tell From JFLA Holdings' ROCE Trend?

There hasn't been much to report for JFLA Holdings' returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at JFLA Holdings in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

On a side note, JFLA Holdings has done well to reduce current liabilities to 27% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Key Takeaway

In a nutshell, JFLA Holdings has been trudging along with the same returns from the same amount of capital over the last five years. And in the last five years, the stock has given away 58% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for JFLA Holdings (of which 1 can't be ignored!) that you should know about.

While JFLA Holdings 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.