AI inside (TSE:4488) Will Want To Turn Around Its Return Trends

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. However, after investigating AI inside (TSE:4488), we don't think it's current trends fit the mold of a multi-bagger.

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Understanding 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. To calculate this metric for AI inside, this is the formula:

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

0.094 = JP¥449m ÷ (JP¥7.3b - JP¥2.6b) (Based on the trailing twelve months to September 2025).

Therefore, AI inside has an ROCE of 9.4%. In absolute terms, that's a low return and it also under-performs the Software industry average of 18%.

Check out our latest analysis for AI inside

Historical performance is a great place to start when researching a stock so above you can see the gauge for AI inside's ROCE against it's prior returns. If you'd like to look at how AI inside has performed in the past in other metrics, you can view this free graph of AI inside's past earnings, revenue and cash flow.

What Can We Tell From AI inside's ROCE Trend?

In terms of AI inside's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 9.4% from 42% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 35%, which has impacted the ROCE. If current liabilities hadn't increased as much as they did, the ROCE could actually be even lower. While the ratio isn't currently too high, it's worth keeping an eye on this because if it gets particularly high, the business could then face some new elements of risk.

The Bottom Line

To conclude, we've found that AI inside is reinvesting in the business, but returns have been falling. Moreover, since the stock has crumbled 96% over the last five years, it appears investors are expecting the worst. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you'd like to know more about AI inside, we've spotted 2 warning signs, and 1 of them is potentially serious.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.