Returns At Rohto PharmaceuticalLtd (TSE:4527) Appear To Be Weighed Down

If you're looking for a multi-bagger, there's a few things to keep an eye out 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 Rohto PharmaceuticalLtd's (TSE:4527) trend of ROCE, we liked what we saw.

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 Rohto PharmaceuticalLtd is:

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

0.14 = JP¥40b ÷ (JP¥409b - JP¥120b) (Based on the trailing twelve months to June 2024).

Therefore, Rohto PharmaceuticalLtd has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Personal Products industry average of 9.6% it's much better.

View our latest analysis for Rohto PharmaceuticalLtd

Above you can see how the current ROCE for Rohto PharmaceuticalLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Rohto PharmaceuticalLtd .

What Can We Tell From Rohto PharmaceuticalLtd's ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has employed 107% more capital in the last five years, and the returns on that capital have remained stable at 14%. 14% is a pretty standard return, and it provides some comfort knowing that Rohto PharmaceuticalLtd has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

In the end, Rohto PharmaceuticalLtd has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 147% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you're still interested in Rohto PharmaceuticalLtd it's worth checking out our FREE intrinsic value approximation for 4527 to see if it's trading at an attractive price in other respects.

While Rohto PharmaceuticalLtd 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.