These Return Metrics Don't Make Hakuhodo DY Holdings (TSE:2433) Look Too Strong

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. Having said that, after a brief look, Hakuhodo DY Holdings (TSE:2433) we aren't filled with optimism, but let's investigate further.

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Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Hakuhodo DY Holdings is:

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

0.064 = JP¥36b ÷ (JP¥878b - JP¥317b) (Based on the trailing twelve months to June 2025).

Therefore, Hakuhodo DY Holdings has an ROCE of 6.4%. In absolute terms, that's a low return and it also under-performs the Media industry average of 11%.

Check out our latest analysis for Hakuhodo DY Holdings

In the above chart we have measured Hakuhodo DY Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Hakuhodo DY Holdings .

What Does the ROCE Trend For Hakuhodo DY Holdings Tell Us?

There is reason to be cautious about Hakuhodo DY Holdings, given the returns are trending downwards. About five years ago, returns on capital were 10%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Hakuhodo DY Holdings becoming one if things continue as they have.

Our Take On Hakuhodo DY Holdings' ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Long term shareholders who've owned the stock over the last five years have experienced a 13% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

One more thing, we've spotted 3 warning signs facing Hakuhodo DY Holdings that you might find interesting.

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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.