Investors Could Be Concerned With Japan Medical Dynamic Marketing's (TSE:7600) Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think Japan Medical Dynamic Marketing (TSE:7600) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Japan Medical Dynamic Marketing is:

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

0.063 = JP¥1.8b ÷ (JP¥34b - JP¥5.2b) (Based on the trailing twelve months to December 2024).

Therefore, Japan Medical Dynamic Marketing has an ROCE of 6.3%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 8.7%.

See our latest analysis for Japan Medical Dynamic Marketing

Above you can see how the current ROCE for Japan Medical Dynamic Marketing 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 Japan Medical Dynamic Marketing for free.

So How Is Japan Medical Dynamic Marketing's ROCE Trending?

On the surface, the trend of ROCE at Japan Medical Dynamic Marketing doesn't inspire confidence. Around five years ago the returns on capital were 14%, but since then they've fallen to 6.3%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. 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.

What We Can Learn From Japan Medical Dynamic Marketing's ROCE

In summary, Japan Medical Dynamic Marketing is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 64% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Japan Medical Dynamic Marketing has the makings of a multi-bagger.

On a final note, we've found 2 warning signs for Japan Medical Dynamic Marketing that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.