Returns At Mitsubishi Gas Chemical Company (TSE:4182) Appear To Be Weighed Down

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Mitsubishi Gas Chemical Company (TSE:4182), it didn't seem to tick all of these boxes.

Understanding 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. Analysts use this formula to calculate it for Mitsubishi Gas Chemical Company:

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

0.067 = JP¥57b ÷ (JP¥1.1t - JP¥238b) (Based on the trailing twelve months to June 2024).

Therefore, Mitsubishi Gas Chemical Company has an ROCE of 6.7%. Even though it's in line with the industry average of 6.8%, it's still a low return by itself.

Check out our latest analysis for Mitsubishi Gas Chemical Company

Above you can see how the current ROCE for Mitsubishi Gas Chemical Company compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Mitsubishi Gas Chemical Company .

What The Trend Of ROCE Can Tell Us

In terms of Mitsubishi Gas Chemical Company's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 6.7% and the business has deployed 39% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

In Conclusion...

In summary, Mitsubishi Gas Chemical Company has simply been reinvesting capital and generating the same low rate of return as before. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 119% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you want to continue researching Mitsubishi Gas Chemical Company, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Mitsubishi Gas Chemical Company 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.