Returns On Capital At Matsumoto Yushi-SeiyakuLtd (TSE:4365) Have Stalled

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Matsumoto Yushi-SeiyakuLtd's (TSE:4365) trend of ROCE, we liked what we saw.

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. Analysts use this formula to calculate it for Matsumoto Yushi-SeiyakuLtd:

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

0.11 = JP¥8.2b ÷ (JP¥86b - JP¥10b) (Based on the trailing twelve months to December 2023).

Therefore, Matsumoto Yushi-SeiyakuLtd has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 6.8% it's much better.

See 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'd like to look at how Matsumoto Yushi-SeiyakuLtd has performed in the past in other metrics, you can view this free graph of Matsumoto Yushi-SeiyakuLtd's past earnings, revenue and cash flow.

The Trend Of ROCE

While the returns on capital are good, they haven't moved much. The company has employed 42% 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.

Our Take On Matsumoto Yushi-SeiyakuLtd's ROCE

The main thing to remember is that Matsumoto Yushi-SeiyakuLtd has proven its ability to continually reinvest at respectable rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

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.

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.