Slowing Rates Of Return At C.UyemuraLtd (TSE:4966) Leave Little Room For Excitement

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over C.UyemuraLtd's (TSE:4966) trend of ROCE, we liked what we saw.

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. The formula for this calculation on C.UyemuraLtd is:

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

0.14 = JP¥13b ÷ (JP¥117b - JP¥21b) (Based on the trailing twelve months to December 2023).

Therefore, C.UyemuraLtd has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 6.8% generated by the Chemicals industry.

Check out our latest analysis for C.UyemuraLtd

Above you can see how the current ROCE for C.UyemuraLtd 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 C.UyemuraLtd .

What Can We Tell From C.UyemuraLtd's ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 48% more capital in the last five years, and the returns on that capital have remained stable at 14%. 14% is a pretty standard return, and it provides some comfort knowing that C.UyemuraLtd 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 C.UyemuraLtd's ROCE

To sum it up, C.UyemuraLtd has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 347% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

While C.UyemuraLtd doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for 4966 on our platform.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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

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.