Returns On Capital At Oriental Land (TSE:4661) Have Hit The Brakes

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Oriental Land's (TSE:4661) ROCE trend, we were pretty happy with what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Oriental Land:

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

0.14 = JP¥160b ÷ (JP¥1.3t - JP¥202b) (Based on the trailing twelve months to June 2024).

Thus, Oriental Land has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 9.8% generated by the Hospitality industry.

See our latest analysis for Oriental Land

Above you can see how the current ROCE for Oriental Land 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 Oriental Land .

What The Trend Of ROCE Can Tell Us

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 14% and the business has deployed 22% more capital into its operations. 14% is a pretty standard return, and it provides some comfort knowing that Oriental Land has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

In the end, Oriental Land has proven its ability to adequately reinvest capital at good rates of return. However, over the last five years, the stock has only delivered a 13% return to shareholders who held over that period. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

Oriental Land could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 4661 on our platform quite valuable.

While Oriental Land 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.