Return Trends At KNT-CT Holdings (TSE:9726) Aren't Appealing

What trends should we look for it we want to identify stocks that can 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over KNT-CT Holdings' (TSE:9726) trend of ROCE, we liked what we saw.

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

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. Analysts use this formula to calculate it for KNT-CT Holdings:

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

0.12 = JP¥6.2b ÷ (JP¥133b - JP¥81b) (Based on the trailing twelve months to December 2024).

Thus, KNT-CT Holdings has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 9.8% generated by the Hospitality industry.

View our latest analysis for KNT-CT Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for KNT-CT Holdings' ROCE against it's prior returns. If you'd like to look at how KNT-CT Holdings has performed in the past in other metrics, you can view this free graph of KNT-CT Holdings' past earnings, revenue and cash flow .

How Are Returns Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 60% more capital in the last five years, and the returns on that capital have remained stable at 12%. Since 12% 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.

On a side note, KNT-CT Holdings has done well to reduce current liabilities to 61% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

The Bottom Line On KNT-CT Holdings' ROCE

The main thing to remember is that KNT-CT Holdings has proven its ability to continually reinvest at respectable rates of return. However, over the last five years, the stock has only delivered a 31% return to shareholders who held over that period. So to determine if KNT-CT Holdings is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

KNT-CT Holdings could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 9726 on our platform quite valuable.

While KNT-CT 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.