The Returns At HYUGA PRIMARY CARELtd (TSE:7133) Aren't Growing

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over HYUGA PRIMARY CARELtd's (TSE:7133) trend of ROCE, we liked what we saw.

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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. Analysts use this formula to calculate it for HYUGA PRIMARY CARELtd:

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

0.16 = JP¥710m ÷ (JP¥6.4b - JP¥2.0b) (Based on the trailing twelve months to March 2024).

So, HYUGA PRIMARY CARELtd has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 8.7% generated by the Healthcare industry.

Check out our latest analysis for HYUGA PRIMARY CARELtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for HYUGA PRIMARY CARELtd's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of HYUGA PRIMARY CARELtd .

So How Is HYUGA PRIMARY CARELtd's ROCE Trending?

While the returns on capital are good, they haven't moved much. Over the past four years, ROCE has remained relatively flat at around 16% and the business has deployed 431% more capital into its operations. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

One more thing to note, even though ROCE has remained relatively flat over the last four years, the reduction in current liabilities to 32% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line On HYUGA PRIMARY CARELtd's ROCE

In the end, HYUGA PRIMARY CARELtd has proven its ability to adequately reinvest capital at good rates of return. Yet over the last three years the stock has declined 68%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

One more thing to note, we've identified 3 warning signs with HYUGA PRIMARY CARELtd and understanding them should be part of your investment process.

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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.