Returns At Kewpie (TSE:2809) Appear To Be Weighed Down

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Kewpie (TSE:2809), it didn't seem to tick all of these boxes.

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 Kewpie:

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

0.087 = JP¥31b ÷ (JP¥433b - JP¥73b) (Based on the trailing twelve months to May 2024).

Therefore, Kewpie has an ROCE of 8.7%. On its own that's a low return, but compared to the average of 7.1% generated by the Food industry, it's much better.

See our latest analysis for Kewpie

In the above chart we have measured Kewpie's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Kewpie .

What Does the ROCE Trend For Kewpie Tell Us?

Things have been pretty stable at Kewpie, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Kewpie to be a multi-bagger going forward.

Our Take On Kewpie's ROCE

We can conclude that in regards to Kewpie's returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 63% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you're still interested in Kewpie it's worth checking out our FREE intrinsic value approximation for 2809 to see if it's trading at an attractive price in other respects.

While Kewpie 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.