Returns On Capital At Maruzen Showa Unyu (TSE:9068) Have Stalled

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 Maruzen Showa Unyu (TSE:9068), it didn't seem to tick all of these boxes.

What Is 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. The formula for this calculation on Maruzen Showa Unyu is:

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

0.087 = JP¥13b ÷ (JP¥191b - JP¥39b) (Based on the trailing twelve months to March 2024).

Thus, Maruzen Showa Unyu has an ROCE of 8.7%. In absolute terms, that's a low return, but it's much better than the Transportation industry average of 4.8%.

Check out our latest analysis for Maruzen Showa Unyu

Above you can see how the current ROCE for Maruzen Showa Unyu 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 Maruzen Showa Unyu .

So How Is Maruzen Showa Unyu's ROCE Trending?

The returns on capital haven't changed much for Maruzen Showa Unyu in recent years. The company has employed 50% more capital in the last five years, and the returns on that capital have remained stable at 8.7%. 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

As we've seen above, Maruzen Showa Unyu's returns on capital haven't increased but it is reinvesting in the business. Although the market must be expecting these trends to improve because the stock has gained 83% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Like most companies, Maruzen Showa Unyu does come with some risks, and we've found 1 warning sign that you should be aware of.

While Maruzen Showa Unyu 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.