The Trends At RIZAP GROUP (SPSE:2928) That You Should Know About

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. In light of that, when we looked at RIZAP GROUP (SPSE:2928) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on RIZAP GROUP is:

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

0.03 = JP¥2.8b ÷ (JP¥168b - JP¥76b) (Based on the trailing twelve months to December 2020).

Thus, RIZAP GROUP has an ROCE of 3.0%. Ultimately, that's a low return and it under-performs the Personal Products industry average of 13%.

Check out our latest analysis for RIZAP GROUP

Historical performance is a great place to start when researching a stock so above you can see the gauge for RIZAP GROUP's ROCE against it's prior returns. If you'd like to look at how RIZAP GROUP has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

On the surface, the trend of ROCE at RIZAP GROUP doesn't inspire confidence. Over the last five years, returns on capital have decreased to 3.0% from 17% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

Another thing to note, RIZAP GROUP has a high ratio of current liabilities to total assets of 45%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On RIZAP GROUP's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for RIZAP GROUP have fallen, meanwhile the business is employing more capital than it was five years ago. In spite of that, the stock has delivered a 26% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

One final note, you should learn about the 3 warning signs we've spotted with RIZAP GROUP (including 2 which make us uncomfortable) .

While RIZAP GROUP 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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