Return Trends At Shizuki Electric (TSE:6994) Aren't Appealing

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Shizuki Electric (TSE:6994) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Shizuki Electric, this is the formula:

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

0.048 = JP¥1.5b ÷ (JP¥37b - JP¥6.1b) (Based on the trailing twelve months to December 2024).

So, Shizuki Electric has an ROCE of 4.8%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 9.0%.

Check out our latest analysis for Shizuki Electric

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 Shizuki Electric has performed in the past in other metrics, you can view this free graph of Shizuki Electric's past earnings, revenue and cash flow.

What Can We Tell From Shizuki Electric's ROCE Trend?

In terms of Shizuki Electric's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 4.8% and the business has deployed 26% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Shizuki Electric's ROCE

In summary, Shizuki Electric has simply been reinvesting capital and generating the same low rate of return as before. And investors appear hesitant that the trends will pick up because the stock has fallen 14% in the last five years. Therefore based on the analysis done in this article, we don't think Shizuki Electric has the makings of a multi-bagger.

One more thing: We've identified 3 warning signs with Shizuki Electric (at least 1 which is a bit concerning) , and understanding these would certainly be useful.

While Shizuki Electric 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.