Returns On Capital At eXmotion (TSE:4394) Have Hit The Brakes

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at eXmotion (TSE:4394) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is 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. The formula for this calculation on eXmotion is:

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

0.045 = JP¥68m ÷ (JP¥1.6b - JP¥129m) (Based on the trailing twelve months to May 2024).

Thus, eXmotion has an ROCE of 4.5%. Ultimately, that's a low return and it under-performs the IT industry average of 16%.

Check out our latest analysis for eXmotion

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'd like to look at how eXmotion has performed in the past in other metrics, you can view this free graph of eXmotion's past earnings, revenue and cash flow.

So How Is eXmotion's ROCE Trending?

Over the past , eXmotion's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if eXmotion doesn't end up being a multi-bagger in a few years time.

The Bottom Line

In a nutshell, eXmotion has been trudging along with the same returns from the same amount of capital over the last . And in the last five years, the stock has given away 66% so the market doesn't look too hopeful on these trends strengthening any time soon. 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.

eXmotion does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those can't be ignored...

While eXmotion 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.