Cookpad's (TSE:2193) Returns Have Hit A Wall

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. In light of that, when we looked at Cookpad (TSE:2193) and its ROCE trend, we weren't exactly thrilled.

Our free stock report includes 2 warning signs investors should be aware of before investing in Cookpad. Read for free now.

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. The formula for this calculation on Cookpad is:

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

0.046 = JP¥667m ÷ (JP¥15b - JP¥646m) (Based on the trailing twelve months to December 2024).

Thus, Cookpad has an ROCE of 4.6%. Ultimately, that's a low return and it under-performs the Interactive Media and Services industry average of 14%.

Check out our latest analysis for Cookpad

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 Cookpad's past further, check out this free graph covering Cookpad's past earnings, revenue and cash flow.

What Can We Tell From Cookpad's ROCE Trend?

We're a bit concerned with the trends, because the business is applying 44% less capital than it was five years ago and returns on that capital have stayed flat. When a company effectively decreases its assets base, it's not usually a sign to be optimistic on that company. In addition to that, since the ROCE doesn't scream "quality" at 4.6%, it's hard to get excited about these developments.

The Bottom Line

It's a shame to see that Cookpad is effectively shrinking in terms of its capital base. And in the last five years, the stock has given away 48% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One final note, you should learn about the 2 warning signs we've spotted with Cookpad (including 1 which is significant) .

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.