Investors Met With Slowing Returns on Capital At TBS HoldingsInc (TSE:9401)

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. In light of that, when we looked at TBS HoldingsInc (TSE:9401) and its ROCE trend, we weren't exactly thrilled.

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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. To calculate this metric for TBS HoldingsInc, this is the formula:

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

0.015 = JP¥20b ÷ (JP¥1.4t - JP¥96b) (Based on the trailing twelve months to December 2024).

Therefore, TBS HoldingsInc has an ROCE of 1.5%. In absolute terms, that's a low return and it also under-performs the Media industry average of 9.4%.

See our latest analysis for TBS HoldingsInc

Above you can see how the current ROCE for TBS HoldingsInc compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for TBS HoldingsInc .

What Can We Tell From TBS HoldingsInc's ROCE Trend?

There are better returns on capital out there than what we're seeing at TBS HoldingsInc. Over the past five years, ROCE has remained relatively flat at around 1.5% and the business has deployed 63% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On TBS HoldingsInc's ROCE

As we've seen above, TBS HoldingsInc's returns on capital haven't increased but it is reinvesting in the business. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 204% gain to shareholders who have held over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One more thing, we've spotted 1 warning sign facing TBS HoldingsInc that you might find interesting.

While TBS HoldingsInc 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.