Here's What To Make Of OpenWork's (TSE:5139) Decelerating Rates Of Return

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. That's why when we briefly looked at OpenWork's (TSE:5139) ROCE trend, we were pretty happy with what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on OpenWork is:

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

0.11 = JP¥661m ÷ (JP¥6.1b - JP¥278m) (Based on the trailing twelve months to March 2024).

Therefore, OpenWork has an ROCE of 11%. 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 OpenWork

In the above chart we have measured OpenWork's 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 OpenWork .

What Does the ROCE Trend For OpenWork Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 119% more capital in the last three 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 OpenWork 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.

The Bottom Line

The main thing to remember is that OpenWork has proven its ability to continually reinvest at respectable rates of return. However, despite the favorable fundamentals, the stock has fallen 43% over the last year, so there might be an opportunity here for astute investors. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

If you want to continue researching OpenWork, you might be interested to know about the 2 warning signs that our analysis has discovered.

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.

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