Some Investors May Be Worried About Taiyo Yuden's (TSE:6976) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Taiyo Yuden (TSE:6976), 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)

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. Analysts use this formula to calculate it for Taiyo Yuden:

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

0.021 = JP¥10b ÷ (JP¥573b - JP¥80b) (Based on the trailing twelve months to March 2025).

Therefore, Taiyo Yuden has an ROCE of 2.1%. Ultimately, that's a low return and it under-performs the Electronic industry average of 9.2%.

See our latest analysis for Taiyo Yuden

Above you can see how the current ROCE for Taiyo Yuden compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Taiyo Yuden .

What Does the ROCE Trend For Taiyo Yuden Tell Us?

On the surface, the trend of ROCE at Taiyo Yuden doesn't inspire confidence. Around five years ago the returns on capital were 14%, but since then they've fallen to 2.1%. However it looks like Taiyo Yuden 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 may take some time before the company starts to see any change in earnings from these investments.

On a related note, Taiyo Yuden has decreased its current liabilities to 14% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line On Taiyo Yuden's ROCE

To conclude, we've found that Taiyo Yuden is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 17% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a final note, we found 3 warning signs for Taiyo Yuden (2 are concerning) you should be aware of.

While Taiyo Yuden 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.