Yakult HonshaLtd (TSE:2267) Has More To Do To Multiply In Value Going Forward

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Although, when we looked at Yakult HonshaLtd (TSE:2267), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

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 Yakult HonshaLtd:

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

0.093 = JP¥64b ÷ (JP¥828b - JP¥147b) (Based on the trailing twelve months to December 2023).

Therefore, Yakult HonshaLtd has an ROCE of 9.3%. In absolute terms, that's a low return, but it's much better than the Food industry average of 6.8%.

See our latest analysis for Yakult HonshaLtd

In the above chart we have measured Yakult HonshaLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Yakult HonshaLtd .

The Trend Of ROCE

There are better returns on capital out there than what we're seeing at Yakult HonshaLtd. Over the past five years, ROCE has remained relatively flat at around 9.3% and the business has deployed 45% more capital into its operations. 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.

The Bottom Line

In conclusion, Yakult HonshaLtd has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has declined 14% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Yakult HonshaLtd has the makings of a multi-bagger.

If you're still interested in Yakult HonshaLtd it's worth checking out our FREE intrinsic value approximation for 2267 to see if it's trading at an attractive price in other respects.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.