Returns On Capital Tell Us A Lot About YUMEMITSUKETAILtd (TYO:2673)

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. On that note, looking into YUMEMITSUKETAILtd (TYO:2673), we weren't too upbeat about how things were going.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for YUMEMITSUKETAILtd, this is the formula:

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

0.0034 = JP¥8.0m ÷ (JP¥3.4b - JP¥1.1b) (Based on the trailing twelve months to December 2020).

Thus, YUMEMITSUKETAILtd has an ROCE of 0.3%. Ultimately, that's a low return and it under-performs the Online Retail industry average of 17%.

View our latest analysis for YUMEMITSUKETAILtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for YUMEMITSUKETAILtd's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of YUMEMITSUKETAILtd, check out these free graphs here.

What Can We Tell From YUMEMITSUKETAILtd's ROCE Trend?

We are a bit worried about the trend of returns on capital at YUMEMITSUKETAILtd. To be more specific, the ROCE was 2.5% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on YUMEMITSUKETAILtd becoming one if things continue as they have.

The Bottom Line On YUMEMITSUKETAILtd's ROCE

In summary, it's unfortunate that YUMEMITSUKETAILtd is generating lower returns from the same amount of capital. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

YUMEMITSUKETAILtd does have some risks, we noticed 3 warning signs (and 2 which don't sit too well with us) we think you should know about.

While YUMEMITSUKETAILtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

When trading YUMEMITSUKETAILtd or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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