Investors Met With Slowing Returns on Capital At Central Japan Railway (TSE:9022)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 briefly looking over the numbers, we don't think Central Japan Railway (TSE:9022) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

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

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. 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)

0.074 = JP¥703b ÷ (JP¥10t - JP¥782b) (Based on the trailing twelve months to March 2025).

Thus, Central Japan Railway has an ROCE of 7.4%. In absolute terms, that's a low return, but it's much better than the Transportation industry average of 5.3%.

View 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're interested, you can view the analysts predictions in our free analyst report for Central Japan Railway .

What Can We Tell From Central Japan Railway's ROCE Trend?

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. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Central Japan Railway to be a multi-bagger going forward.

The Key Takeaway

In a nutshell, Central Japan Railway has been trudging along with the same returns from the same amount of capital over the last five years. And investors appear hesitant that the trends will pick up because the stock has fallen 12% in the last five years. Therefore based on the analysis done in this article, we don't think Central Japan Railway has the makings of a multi-bagger.

One more thing, we've spotted 2 warning signs facing Central Japan Railway that you might find interesting.

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.

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

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.