Yakult HonshaLtd (TSE:2267) Is Reinvesting At Lower Rates Of Return

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Yakult HonshaLtd (TSE:2267) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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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 Yakult HonshaLtd:

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

0.074 = JP¥50b ÷ (JP¥833b - JP¥159b) (Based on the trailing twelve months to June 2025).

Thus, Yakult HonshaLtd has an ROCE of 7.4%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.3%.

See our latest analysis for Yakult HonshaLtd

Above you can see how the current ROCE for Yakult HonshaLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Yakult HonshaLtd .

What Can We Tell From Yakult HonshaLtd's ROCE Trend?

On the surface, the trend of ROCE at Yakult HonshaLtd doesn't inspire confidence. To be more specific, ROCE has fallen from 9.3% over the last five years. However it looks like Yakult HonshaLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Yakult HonshaLtd's ROCE

In summary, Yakult HonshaLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

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.

While Yakult HonshaLtd 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.