Will The ROCE Trend At OhmoriyaLtd (TYO:2917) Continue?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at OhmoriyaLtd (TYO:2917) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

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 OhmoriyaLtd is:

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

0.031 = JP¥342m ÷ (JP¥13b - JP¥2.1b) (Based on the trailing twelve months to September 2020).

Thus, OhmoriyaLtd has an ROCE of 3.1%. In absolute terms, that's a low return and it also under-performs the Food industry average of 6.7%.

See our latest analysis for OhmoriyaLtd

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

What Does the ROCE Trend For OhmoriyaLtd Tell Us?

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 421% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

In summary, we're delighted to see that OhmoriyaLtd has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 12% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

On a separate note, we've found 1 warning sign for OhmoriyaLtd you'll probably want to know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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