Slowing Rates Of Return At Chori (TSE:8014) Leave Little Room For Excitement

Simply Wall St · 4d ago

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Chori's (TSE:8014) trend of ROCE, we liked what we saw.

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Understanding 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. Analysts use this formula to calculate it for Chori:

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

0.16 = JP¥14b ÷ (JP¥144b - JP¥51b) (Based on the trailing twelve months to December 2024).

Thus, Chori has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Trade Distributors industry average of 7.2% it's much better.

Check out our latest analysis for Chori

roce
TSE:8014 Return on Capital Employed April 15th 2025

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Chori.

What Does the ROCE Trend For Chori Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 16% for the last five years, and the capital employed within the business has risen 54% in that time. 16% is a pretty standard return, and it provides some comfort knowing that Chori has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 36% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

Our Take On Chori's ROCE

In the end, Chori has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 136% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you want to continue researching Chori, you might be interested to know about the 1 warning sign that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.