Returns On Capital At Itoham Yonekyu Holdings (TSE:2296) Have Stalled

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. However, after investigating Itoham Yonekyu Holdings (TSE:2296), we don't think it's current trends fit the mold of a multi-bagger.

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Understanding 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. To calculate this metric for Itoham Yonekyu Holdings, this is the formula:

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

0.061 = JP¥19b ÷ (JP¥504b - JP¥198b) (Based on the trailing twelve months to December 2024).

Thus, Itoham Yonekyu Holdings has an ROCE of 6.1%. In absolute terms, that's a low return but it's around the Food industry average of 6.9%.

View our latest analysis for Itoham Yonekyu Holdings

In the above chart we have measured Itoham Yonekyu Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Itoham Yonekyu Holdings for free.

How Are Returns Trending?

There are better returns on capital out there than what we're seeing at Itoham Yonekyu Holdings. Over the past five years, ROCE has remained relatively flat at around 6.1% and the business has deployed 21% 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 On Itoham Yonekyu Holdings' ROCE

In conclusion, Itoham Yonekyu Holdings has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 68% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Like most companies, Itoham Yonekyu Holdings does come with some risks, and we've found 1 warning sign that you should be aware of.

While Itoham Yonekyu Holdings 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.