Return Trends At Sakurajima Futo Kaisha (TSE:9353) Aren't Appealing

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Sakurajima Futo Kaisha (TSE:9353) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Sakurajima Futo Kaisha is:

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

0.023 = JP¥207m ÷ (JP¥10.0b - JP¥979m) (Based on the trailing twelve months to September 2024).

So, Sakurajima Futo Kaisha has an ROCE of 2.3%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 4.0%.

See our latest analysis for Sakurajima Futo Kaisha

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sakurajima Futo Kaisha's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Sakurajima Futo Kaisha.

What Can We Tell From Sakurajima Futo Kaisha's ROCE Trend?

The returns on capital haven't changed much for Sakurajima Futo Kaisha in recent years. The company has employed 75% more capital in the last five years, and the returns on that capital have remained stable at 2.3%. 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.

The Bottom Line On Sakurajima Futo Kaisha's ROCE

As we've seen above, Sakurajima Futo Kaisha's returns on capital haven't increased but it is reinvesting in the business. And in the last five years, the stock has given away 12% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Sakurajima Futo Kaisha has the makings of a multi-bagger.

Sakurajima Futo Kaisha does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

While Sakurajima Futo Kaisha 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.