Return Trends At Matsumoto Yushi-SeiyakuLtd (TSE:4365) Aren't Appealing

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Matsumoto Yushi-SeiyakuLtd's (TSE:4365) ROCE trend, we were pretty happy with what we saw.

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. The formula for this calculation on Matsumoto Yushi-SeiyakuLtd is:

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

0.11 = JP¥8.8b ÷ (JP¥90b - JP¥11b) (Based on the trailing twelve months to March 2024).

So, Matsumoto Yushi-SeiyakuLtd has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 6.7% it's much better.

View our latest analysis for Matsumoto Yushi-SeiyakuLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Matsumoto Yushi-SeiyakuLtd's past further, check out this free graph covering Matsumoto Yushi-SeiyakuLtd's past earnings, revenue and cash flow.

So How Is Matsumoto Yushi-SeiyakuLtd's ROCE Trending?

While the current returns on capital are decent, they haven't changed much. The company has employed 44% more capital in the last five years, and the returns on that capital have remained stable at 11%. 11% is a pretty standard return, and it provides some comfort knowing that Matsumoto Yushi-SeiyakuLtd 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.

In Conclusion...

The main thing to remember is that Matsumoto Yushi-SeiyakuLtd has proven its ability to continually reinvest at respectable rates of return. Therefore it's no surprise that shareholders have earned a respectable 69% return if they held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you're still interested in Matsumoto Yushi-SeiyakuLtd it's worth checking out our FREE intrinsic value approximation for 4365 to see if it's trading at an attractive price in other respects.

While Matsumoto Yushi-SeiyakuLtd 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.

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