Returns At Maruzen CHI HoldingsLtd (TSE:3159) Appear To Be Weighed Down

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Maruzen CHI HoldingsLtd (TSE:3159), we don't think it's current trends fit the mold of a multi-bagger.

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. Analysts use this formula to calculate it for Maruzen CHI HoldingsLtd:

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

0.047 = JP¥3.5b ÷ (JP¥135b - JP¥61b) (Based on the trailing twelve months to April 2024).

So, Maruzen CHI HoldingsLtd has an ROCE of 4.7%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 10%.

Check out our latest analysis for Maruzen CHI HoldingsLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Maruzen CHI HoldingsLtd's past further, check out this free graph covering Maruzen CHI HoldingsLtd's past earnings, revenue and cash flow.

What Does the ROCE Trend For Maruzen CHI HoldingsLtd Tell Us?

There hasn't been much to report for Maruzen CHI HoldingsLtd's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Maruzen CHI HoldingsLtd doesn't end up being a multi-bagger in a few years time.

Another thing to note, Maruzen CHI HoldingsLtd has a high ratio of current liabilities to total assets of 45%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Maruzen CHI HoldingsLtd's ROCE

We can conclude that in regards to Maruzen CHI HoldingsLtd's returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 17% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

While Maruzen CHI HoldingsLtd doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for 3159 on our platform.

While Maruzen CHI HoldingsLtd 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.

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