Return Trends At SaizeriyaLtd (TSE:7581) Aren't Appealing

There are a few key trends to look for if we want to identify the next multi-bagger. 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. That's why when we briefly looked at SaizeriyaLtd's (TSE:7581) ROCE trend, we were pretty happy with what we saw.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for SaizeriyaLtd:

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

0.11 = JP¥15b ÷ (JP¥171b - JP¥32b) (Based on the trailing twelve months to February 2025).

So, SaizeriyaLtd has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.7% generated by the Hospitality industry.

See our latest analysis for SaizeriyaLtd

Above you can see how the current ROCE for SaizeriyaLtd 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 SaizeriyaLtd for free.

What Does the ROCE Trend For SaizeriyaLtd Tell Us?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 11% and the business has deployed 40% more capital into its operations. 11% is a pretty standard return, and it provides some comfort knowing that SaizeriyaLtd 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.

Our Take On SaizeriyaLtd's ROCE

In the end, SaizeriyaLtd has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 114% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

SaizeriyaLtd could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 7581 on our platform quite valuable.

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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.