Return Trends At Matsuya Foods Holdings (TSE:9887) 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Matsuya Foods Holdings (TSE:9887) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Matsuya Foods Holdings is:

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

0.077 = JP¥5.3b ÷ (JP¥91b - JP¥22b) (Based on the trailing twelve months to March 2024).

Therefore, Matsuya Foods Holdings has an ROCE of 7.7%. In absolute terms, that's a low return but it's around the Hospitality industry average of 9.6%.

See our latest analysis for Matsuya Foods Holdings

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Matsuya Foods Holdings has performed in the past in other metrics, you can view this free graph of Matsuya Foods Holdings' past earnings, revenue and cash flow.

What Does the ROCE Trend For Matsuya Foods Holdings Tell Us?

There are better returns on capital out there than what we're seeing at Matsuya Foods Holdings. The company has consistently earned 7.7% for the last five years, and the capital employed within the business has risen 36% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

What We Can Learn From Matsuya Foods Holdings' ROCE

In conclusion, Matsuya Foods Holdings has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 43% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Matsuya Foods Holdings does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is potentially serious...

While Matsuya Foods 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com