Returns At Electric Power Development (TSE:9513) Appear To Be Weighed Down

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Electric Power Development (TSE:9513), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Electric Power Development is:

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

0.036 = JP¥112b ÷ (JP¥3.5t - JP¥376b) (Based on the trailing twelve months to June 2024).

Therefore, Electric Power Development has an ROCE of 3.6%. In absolute terms, that's a low return, but it's much better than the Renewable Energy industry average of 2.5%.

View our latest analysis for Electric Power Development

Above you can see how the current ROCE for Electric Power Development compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Electric Power Development for free.

So How Is Electric Power Development's ROCE Trending?

The returns on capital haven't changed much for Electric Power Development in recent years. Over the past five years, ROCE has remained relatively flat at around 3.6% and the business has deployed 26% more capital into its operations. 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.

Our Take On Electric Power Development's ROCE

Long story short, while Electric Power Development has been reinvesting its capital, the returns that it's generating haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 14% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

On a separate note, we've found 2 warning signs for Electric Power Development you'll probably want to know about.

While Electric Power Development isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.