Here's What To Make Of KomeriLtd's (TSE:8218) Decelerating Rates Of Return

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at KomeriLtd (TSE:8218), it didn't seem to tick all of these boxes.

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 KomeriLtd, this is the formula:

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

0.082 = JP¥22b ÷ (JP¥373b - JP¥104b) (Based on the trailing twelve months to March 2024).

Therefore, KomeriLtd has an ROCE of 8.2%. On its own, that's a low figure but it's around the 10% average generated by the Specialty Retail industry.

Check out our latest analysis for KomeriLtd

Above you can see how the current ROCE for KomeriLtd 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 KomeriLtd .

So How Is KomeriLtd's ROCE Trending?

There hasn't been much to report for KomeriLtd's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if KomeriLtd doesn't end up being a multi-bagger in a few years time.

In Conclusion...

In summary, KomeriLtd isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has gained an impressive 72% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

KomeriLtd could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 8218 on our platform quite valuable.

While KomeriLtd 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.

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