Be Wary Of Maruo Calcium (TSE:4102) And Its Returns On Capital

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. And from a first read, things don't look too good at Maruo Calcium (TSE:4102), so let's see why.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Maruo Calcium:

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

0.011 = JP¥137m ÷ (JP¥17b - JP¥4.8b) (Based on the trailing twelve months to March 2024).

So, Maruo Calcium has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 6.7%.

View our latest analysis for Maruo Calcium

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

What Can We Tell From Maruo Calcium's ROCE Trend?

There is reason to be cautious about Maruo Calcium, given the returns are trending downwards. Unfortunately the returns on capital have diminished from the 4.9% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Maruo Calcium becoming one if things continue as they have.

In Conclusion...

In summary, it's unfortunate that Maruo Calcium is generating lower returns from the same amount of capital. Investors must expect better things on the horizon though because the stock has risen 2.1% in 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 more thing: We've identified 2 warning signs with Maruo Calcium (at least 1 which shouldn't be ignored) , and understanding them would certainly be useful.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com