The Returns At MICS Chemical (TYO:7899) Provide Us With Signs Of What's To Come

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at MICS Chemical (TYO:7899) and its ROCE trend, we weren't exactly thrilled.

What is 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. To calculate this metric for MICS Chemical, this is the formula:

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

0.011 = JP¥36m ÷ (JP¥3.6b - JP¥488m) (Based on the trailing twelve months to July 2020).

So, MICS Chemical has an ROCE of 1.1%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 6.3%.

Check out our latest analysis for MICS Chemical

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

What The Trend Of ROCE Can Tell Us

Over the past five years, MICS Chemical's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect MICS Chemical to be a multi-bagger going forward.

The Bottom Line

In a nutshell, MICS Chemical has been trudging along with the same returns from the same amount of capital over the last five years. And investors may be recognizing these trends since the stock has only returned a total of 13% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you'd like to know more about MICS Chemical, we've spotted 4 warning signs, and 1 of them can't be ignored.

While MICS Chemical 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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