Returns At CareerIndex (TSE:6538) Appear To Be Weighed Down

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at CareerIndex (TSE:6538) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for CareerIndex, this is the formula:

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

0.026 = JP¥126m ÷ (JP¥5.7b - JP¥926m) (Based on the trailing twelve months to December 2023).

Thus, CareerIndex has an ROCE of 2.6%. In absolute terms, that's a low return and it also under-performs the Interactive Media and Services industry average of 16%.

Check out our latest analysis for CareerIndex

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

The Trend Of ROCE

Over the past , CareerIndex's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect CareerIndex to be a multi-bagger going forward.

What We Can Learn From CareerIndex's ROCE

In a nutshell, CareerIndex has been trudging along with the same returns from the same amount of capital over the last . Moreover, since the stock has crumbled 75% over the last five years, it appears investors are expecting the worst. 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.

If you'd like to know about the risks facing CareerIndex, we've discovered 4 warning signs that you should be aware of.

While CareerIndex 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.