Here's What's Concerning About Shindengen Electric ManufacturingLtd's (TSE:6844) Returns On Capital

What financial metrics can indicate to us that a company is maturing or even in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. In light of that, from a first glance at Shindengen Electric ManufacturingLtd (TSE:6844), we've spotted some signs that it could be struggling, so let's investigate.

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What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Shindengen Electric ManufacturingLtd:

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

0.0012 = JP¥129m ÷ (JP¥136b - JP¥31b) (Based on the trailing twelve months to March 2025).

So, Shindengen Electric ManufacturingLtd has an ROCE of 0.1%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 13%.

View our latest analysis for Shindengen Electric ManufacturingLtd

In the above chart we have measured Shindengen Electric ManufacturingLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Shindengen Electric ManufacturingLtd for free.

How Are Returns Trending?

We are a bit worried about the trend of returns on capital at Shindengen Electric ManufacturingLtd. About five years ago, returns on capital were 1.9%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Shindengen Electric ManufacturingLtd becoming one if things continue as they have.

What We Can Learn From Shindengen Electric ManufacturingLtd's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. But investors must be expecting an improvement of sorts because over the last five yearsthe stock has delivered a respectable 50% return. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

One more thing, we've spotted 1 warning sign facing Shindengen Electric ManufacturingLtd that you might find interesting.

While Shindengen Electric ManufacturingLtd 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.