Returns At MEGMILK SNOW BRANDLtd (TSE:2270) Appear To Be Weighed Down

There are a few key trends to look for if we want to identify the next 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. Having said that, from a first glance at MEGMILK SNOW BRANDLtd (TSE:2270) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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What Is 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. Analysts use this formula to calculate it for MEGMILK SNOW BRANDLtd:

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

0.059 = JP¥18b ÷ (JP¥442b - JP¥129b) (Based on the trailing twelve months to December 2024).

Thus, MEGMILK SNOW BRANDLtd has an ROCE of 5.9%. On its own, that's a low figure but it's around the 6.8% average generated by the Food industry.

View our latest analysis for MEGMILK SNOW BRANDLtd

Above you can see how the current ROCE for MEGMILK SNOW BRANDLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering MEGMILK SNOW BRANDLtd for free.

So How Is MEGMILK SNOW BRANDLtd's ROCE Trending?

The returns on capital haven't changed much for MEGMILK SNOW BRANDLtd in recent years. The company has employed 25% more capital in the last five years, and the returns on that capital have remained stable at 5.9%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On MEGMILK SNOW BRANDLtd's ROCE

Long story short, while MEGMILK SNOW BRANDLtd has been reinvesting its capital, the returns that it's generating haven't increased. And with the stock having returned a mere 24% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One more thing: We've identified 3 warning signs with MEGMILK SNOW BRANDLtd (at least 1 which is a bit concerning) , and understanding these would certainly be useful.

While MEGMILK SNOW BRANDLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.