The Returns On Capital At CNSLtd (TSE:4076) Don't Inspire Confidence

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at CNSLtd (TSE:4076) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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Return On Capital Employed (ROCE): What Is It?

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 CNSLtd:

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

0.13 = JP¥555m ÷ (JP¥5.3b - JP¥861m) (Based on the trailing twelve months to May 2025).

So, CNSLtd has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the IT industry average of 15%.

Check out our latest analysis for CNSLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for CNSLtd's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of CNSLtd.

How Are Returns Trending?

When we looked at the ROCE trend at CNSLtd, we didn't gain much confidence. Around five years ago the returns on capital were 21%, but since then they've fallen to 13%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Key Takeaway

To conclude, we've found that CNSLtd is reinvesting in the business, but returns have been falling. Although the market must be expecting these trends to improve because the stock has gained 38% over the last three years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

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

While CNSLtd 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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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.