What Do The Returns On Capital At Watt Mann (TYO:9927) Tell Us?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Watt Mann (TYO:9927), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Watt Mann is:

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

0.10 = JP¥307m ÷ (JP¥3.4b - JP¥449m) (Based on the trailing twelve months to September 2020).

So, Watt Mann has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Specialty Retail industry average of 8.8%.

Check out our latest analysis for Watt Mann

Historical performance is a great place to start when researching a stock so above you can see the gauge for Watt Mann's ROCE against it's prior returns. If you're interested in investigating Watt Mann's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Watt Mann's ROCE Trending?

Things have been pretty stable at Watt Mann, with its capital employed and returns on that capital staying somewhat the same for the last . This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Watt Mann to be a multi-bagger going forward.

What We Can Learn From Watt Mann's ROCE

In a nutshell, Watt Mann has been trudging along with the same returns from the same amount of capital over the last . Since the stock has gained an impressive 62% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing, we've spotted 2 warning signs facing Watt Mann that you might find interesting.

While Watt Mann 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.

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