We Like These Underlying Return On Capital Trends At ChoushimaruLtd (TSE:3075)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in ChoushimaruLtd's (TSE:3075) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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 ChoushimaruLtd is:

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

0.17 = JP¥1.7b ÷ (JP¥13b - JP¥3.0b) (Based on the trailing twelve months to May 2024).

So, ChoushimaruLtd 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.

View our latest analysis for ChoushimaruLtd

In the above chart we have measured ChoushimaruLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering ChoushimaruLtd for free.

So How Is ChoushimaruLtd's ROCE Trending?

Investors would be pleased with what's happening at ChoushimaruLtd. The data shows that returns on capital have increased substantially over the last five years to 17%. The amount of capital employed has increased too, by 39%. So we're very much inspired by what we're seeing at ChoushimaruLtd thanks to its ability to profitably reinvest capital.

In Conclusion...

In summary, it's great to see that ChoushimaruLtd can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 37% 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 ChoushimaruLtd looks impressive, no company is worth an infinite price. The intrinsic value infographic for 3075 helps visualize whether it is currently trading for a fair price.

While ChoushimaruLtd 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.