Takara Holdings' (TSE:2531) Returns On Capital Not Reflecting Well On The Business

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Takara Holdings (TSE:2531), we don't think it's current trends fit the mold of a multi-bagger.

We've discovered 1 warning sign about Takara Holdings. View them for free.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Takara Holdings, this is the formula:

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

0.054 = JP¥19b ÷ (JP¥459b - JP¥101b) (Based on the trailing twelve months to December 2024).

So, Takara Holdings has an ROCE of 5.4%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 7.0%.

See our latest analysis for Takara Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Takara Holdings' 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 Takara Holdings.

How Are Returns Trending?

On the surface, the trend of ROCE at Takara Holdings doesn't inspire confidence. Over the last five years, returns on capital have decreased to 5.4% from 6.9% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. 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 Takara Holdings' ROCE

Bringing it all together, while we're somewhat encouraged by Takara Holdings' reinvestment in its own business, we're aware that returns are shrinking. Since the stock has gained an impressive 78% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Takara Holdings does have some risks though, and we've spotted 1 warning sign for Takara Holdings that you might be interested in.

While Takara Holdings 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.