Returns On Capital At KENKO MayonnaiseLtd (TSE:2915) Have Hit The Brakes

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 KENKO MayonnaiseLtd (TSE:2915), we don't think it's current trends fit the mold of a multi-bagger.

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 KENKO MayonnaiseLtd:

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

0.065 = JP¥3.0b ÷ (JP¥67b - JP¥22b) (Based on the trailing twelve months to March 2024).

Thus, KENKO MayonnaiseLtd has an ROCE of 6.5%. On its own, that's a low figure but it's around the 7.1% average generated by the Food industry.

View our latest analysis for KENKO MayonnaiseLtd

In the above chart we have measured KENKO MayonnaiseLtd's 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 KENKO MayonnaiseLtd for free.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for KENKO MayonnaiseLtd's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if KENKO MayonnaiseLtd doesn't end up being a multi-bagger in a few years time.

The Key Takeaway

We can conclude that in regards to KENKO MayonnaiseLtd's returns on capital employed and the trends, there isn't much change to report on. Unsurprisingly then, the total return to shareholders over the last five years has been flat. Therefore based on the analysis done in this article, we don't think KENKO MayonnaiseLtd has the makings of a multi-bagger.

KENKO MayonnaiseLtd does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is potentially serious...

While KENKO MayonnaiseLtd 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.

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