Some Investors May Be Worried About BlueMeme's (TSE:4069) Returns On Capital

Simply Wall St · 6d ago

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. Having said that, from a first glance at BlueMeme (TSE:4069) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for BlueMeme:

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

0.018 = JP¥45m ÷ (JP¥3.2b - JP¥644m) (Based on the trailing twelve months to December 2024).

Thus, BlueMeme has an ROCE of 1.8%. Ultimately, that's a low return and it under-performs the IT industry average of 16%.

See our latest analysis for BlueMeme

roce
TSE:4069 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're interested in investigating BlueMeme's past further, check out this free graph covering BlueMeme's past earnings, revenue and cash flow.

What Can We Tell From BlueMeme's ROCE Trend?

When we looked at the ROCE trend at BlueMeme, we didn't gain much confidence. To be more specific, ROCE has fallen from 8.3% over the last five years. 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.

On a side note, BlueMeme has done well to pay down its current liabilities to 20% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Bottom Line On BlueMeme's ROCE

To conclude, we've found that BlueMeme is reinvesting in the business, but returns have been falling. Since the stock has declined 48% over the last three years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

BlueMeme does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

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.