We Like These Underlying Return On Capital Trends At J. Front Retailing (TSE:3086)

There are a few key trends to look for if we want to identify the next 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at J. Front Retailing (TSE:3086) and its trend of ROCE, we really liked what we saw.

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Understanding 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 J. Front Retailing, this is the formula:

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

0.071 = JP¥58b ÷ (JP¥1.2t - JP¥341b) (Based on the trailing twelve months to February 2025).

Therefore, J. Front Retailing has an ROCE of 7.1%. In absolute terms, that's a low return and it also under-performs the Multiline Retail industry average of 11%.

View our latest analysis for J. Front Retailing

Above you can see how the current ROCE for J. Front Retailing compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for J. Front Retailing .

How Are Returns Trending?

J. Front Retailing has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 31% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

What We Can Learn From J. Front Retailing's ROCE

In summary, we're delighted to see that J. Front Retailing has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 143% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing: We've identified 2 warning signs with J. Front Retailing (at least 1 which doesn't sit too well with us) , and understanding them would certainly be useful.

While J. Front Retailing 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.