Central Japan Railway (TSE:9022) Hasn't Managed To Accelerate Its Returns

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Central Japan Railway (TSE:9022), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Central Japan Railway:

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

0.066 = JP¥607b ÷ (JP¥9.9t - JP¥799b) (Based on the trailing twelve months to March 2024).

So, Central Japan Railway has an ROCE of 6.6%. In absolute terms, that's a low return, but it's much better than the Transportation industry average of 4.8%.

See our latest analysis for Central Japan Railway

In the above chart we have measured Central Japan Railway's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Central Japan Railway .

What Does the ROCE Trend For Central Japan Railway Tell Us?

There hasn't been much to report for Central Japan Railway's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Central Japan Railway doesn't end up being a multi-bagger in a few years time.

The Bottom Line On Central Japan Railway's ROCE

We can conclude that in regards to Central Japan Railway's returns on capital employed and the trends, there isn't much change to report on. And in the last five years, the stock has given away 22% so the market doesn't look too hopeful on these trends strengthening any time soon. 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.

If you'd like to know about the risks facing Central Japan Railway, we've discovered 1 warning sign that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com