Rohto PharmaceuticalLtd's (TSE:4527) Returns On Capital Not Reflecting Well On The Business

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. 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. 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 Rohto PharmaceuticalLtd (TSE:4527) 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)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Rohto PharmaceuticalLtd is:

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

0.11 = JP¥38b ÷ (JP¥428b - JP¥85b) (Based on the trailing twelve months to June 2025).

Therefore, Rohto PharmaceuticalLtd has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Personal Products industry average of 9.5%.

Check out our latest analysis for Rohto PharmaceuticalLtd

In the above chart we have measured Rohto PharmaceuticalLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Rohto PharmaceuticalLtd for free.

What Does the ROCE Trend For Rohto PharmaceuticalLtd Tell Us?

In terms of Rohto PharmaceuticalLtd's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 11% from 15% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Rohto PharmaceuticalLtd's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Rohto PharmaceuticalLtd is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 44% over the last five years, it would appear that investors are upbeat about the future. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

Rohto PharmaceuticalLtd could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 4527 on our platform quite valuable.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.