What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 investigating ANA Holdings (TSE:9202), we don't think it's current trends fit the mold of a multi-bagger.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for ANA Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.082 = JP¥208b ÷ (JP¥3.6t - JP¥1.0t) (Based on the trailing twelve months to March 2024).
Therefore, ANA Holdings has an ROCE of 8.2%. Even though it's in line with the industry average of 8.2%, it's still a low return by itself.
Check out our latest analysis for ANA Holdings
Above you can see how the current ROCE for ANA Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for ANA Holdings .
So How Is ANA Holdings' ROCE Trending?
In terms of ANA Holdings' historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 8.2% for the last five years, and the capital employed within the business has risen 27% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
What We Can Learn From ANA Holdings' ROCE
In conclusion, ANA Holdings has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has declined 18% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
If you'd like to know more about ANA Holdings, we've spotted 2 warning signs, and 1 of them is significant.
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.
About TSE:9202
ANA Holdings
Provides air transportation services in Japan and internationally.
Excellent balance sheet second-rate dividend payer.
