The Returns On Capital At Landix (TSE:2981) Don't Inspire Confidence

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Landix (TSE:2981) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Landix is:

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

0.12 = JP¥1.3b ÷ (JP¥15b - JP¥4.8b) (Based on the trailing twelve months to March 2024).

Therefore, Landix has an ROCE of 12%. In absolute terms, that's a pretty standard return but compared to the Interactive Media and Services industry average it falls behind.

View our latest analysis for Landix

Historical performance is a great place to start when researching a stock so above you can see the gauge for Landix's ROCE against it's prior returns. If you'd like to look at how Landix has performed in the past in other metrics, you can view this free graph of Landix's past earnings, revenue and cash flow.

So How Is Landix's ROCE Trending?

In terms of Landix's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 19%, but since then they've fallen to 12%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line On Landix's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Landix is reinvesting for growth and has higher sales as a result. In light of this, the stock has only gained 2.8% over the last three years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

One final note, you should learn about the 4 warning signs we've spotted with Landix (including 1 which doesn't sit too well with us) .

While Landix 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