Here's What's Concerning About M3's (TSE:2413) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. In light of that, when we looked at M3 (TSE:2413) and its ROCE trend, we weren't exactly thrilled.

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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 M3, this is the formula:

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

0.12 = JP¥60b ÷ (JP¥582b - JP¥82b) (Based on the trailing twelve months to March 2025).

Thus, M3 has an ROCE of 12%. In absolute terms, that's a pretty standard return but compared to the Healthcare Services industry average it falls behind.

View our latest analysis for M3

Above you can see how the current ROCE for M3 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 M3 for free.

What The Trend Of ROCE Can Tell Us

In terms of M3's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 12% from 19% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On M3's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for M3. However, despite the promising trends, the stock has fallen 50% over the last five years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

If you're still interested in M3 it's worth checking out our FREE intrinsic value approximation for 2413 to see if it's trading at an attractive price in other respects.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.