Keiyo Gas (TSE:9539) Will Want To Turn Around Its Return Trends

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Although, when we looked at Keiyo Gas (TSE:9539), it didn't seem to tick all of these boxes.

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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 Keiyo Gas is:

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

0.0094 = JP¥1.3b ÷ (JP¥168b - JP¥26b) (Based on the trailing twelve months to December 2024).

Thus, Keiyo Gas has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Gas Utilities industry average of 4.9%.

Check out our latest analysis for Keiyo Gas

Historical performance is a great place to start when researching a stock so above you can see the gauge for Keiyo Gas' ROCE against it's prior returns. If you're interested in investigating Keiyo Gas' past further, check out this free graph covering Keiyo Gas' past earnings, revenue and cash flow .

How Are Returns Trending?

On the surface, the trend of ROCE at Keiyo Gas doesn't inspire confidence. Around five years ago the returns on capital were 6.8%, but since then they've fallen to 0.9%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On Keiyo Gas' ROCE

To conclude, we've found that Keiyo Gas is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 2.7% 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.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Keiyo Gas (of which 2 are a bit concerning!) that you should know about.

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.