Slowing Rates Of Return At Lifedrink Company (TSE:2585) Leave Little Room For Excitement

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Lifedrink Company (TSE:2585) looks decent, right now, so lets see what the trend of returns can tell us.

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. To calculate this metric for Lifedrink Company, this is the formula:

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

0.19 = JP¥4.6b ÷ (JP¥36b - JP¥12b) (Based on the trailing twelve months to June 2024).

So, Lifedrink Company has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Beverage industry average of 7.7% it's much better.

View our latest analysis for Lifedrink Company

Above you can see how the current ROCE for Lifedrink Company compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Lifedrink Company .

So How Is Lifedrink Company's ROCE Trending?

While the current returns on capital are decent, they haven't changed much. Over the past one year, ROCE has remained relatively flat at around 19% and the business has deployed 49% more capital into its operations. 19% is a pretty standard return, and it provides some comfort knowing that Lifedrink Company has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Lifedrink Company's ROCE

The main thing to remember is that Lifedrink Company has proven its ability to continually reinvest at respectable rates of return. And since the stock has risen strongly over the last year, it appears the market might expect this trend to continue. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Lifedrink Company does have some risks though, and we've spotted 1 warning sign for Lifedrink Company that you might be interested in.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.