The Returns On Capital At AKIBA HoldingsLtd (TSE:6840) Don't Inspire Confidence

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at AKIBA HoldingsLtd (TSE:6840), it didn't seem to tick all of these boxes.

Understanding 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 AKIBA HoldingsLtd is:

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

0.099 = JP¥548m ÷ (JP¥12b - JP¥6.3b) (Based on the trailing twelve months to September 2024).

Thus, AKIBA HoldingsLtd has an ROCE of 9.9%. In absolute terms, that's a low return but it's around the Tech industry average of 9.0%.

View our latest analysis for AKIBA HoldingsLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for AKIBA HoldingsLtd's ROCE against it's prior returns. If you're interested in investigating AKIBA HoldingsLtd's past further, check out this free graph covering AKIBA HoldingsLtd's past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of AKIBA HoldingsLtd's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 9.9% from 32% five years ago. However it looks like AKIBA HoldingsLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. 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.

Another thing to note, AKIBA HoldingsLtd has a high ratio of current liabilities to total assets of 53%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From AKIBA HoldingsLtd's ROCE

To conclude, we've found that AKIBA HoldingsLtd is reinvesting in the business, but returns have been falling. Since the stock has declined 61% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think AKIBA HoldingsLtd has the makings of a multi-bagger.

AKIBA HoldingsLtd does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those make us uncomfortable...

While AKIBA HoldingsLtd 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.