Returns On Capital Signal Tricky Times Ahead For Cosmo Bio CompanyLimited (TSE:3386)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. In light of that, when we looked at Cosmo Bio CompanyLimited (TSE:3386) and its ROCE trend, we weren't exactly thrilled.

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Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Cosmo Bio CompanyLimited is:

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

0.02 = JP¥226m ÷ (JP¥12b - JP¥1.1b) (Based on the trailing twelve months to September 2025).

So, Cosmo Bio CompanyLimited has an ROCE of 2.0%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 8.5%.

Check out our latest analysis for Cosmo Bio CompanyLimited

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Cosmo Bio CompanyLimited.

What Can We Tell From Cosmo Bio CompanyLimited's ROCE Trend?

When we looked at the ROCE trend at Cosmo Bio CompanyLimited, we didn't gain much confidence. To be more specific, ROCE has fallen from 8.0% over the last five years. However it looks like Cosmo Bio CompanyLimited might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Cosmo Bio CompanyLimited's ROCE

Bringing it all together, while we're somewhat encouraged by Cosmo Bio CompanyLimited's reinvestment in its own business, we're aware that returns are shrinking. And investors may be recognizing these trends since the stock has only returned a total of 37% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

On a final note, we found 5 warning signs for Cosmo Bio CompanyLimited (1 is significant) you should be aware of.

While Cosmo Bio CompanyLimited 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.