If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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 DYNAM JAPAN HOLDINGS (HKG:6889), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for DYNAM JAPAN HOLDINGS:

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

0.043 = JP¥11b ÷ (JP¥293b - JP¥47b) (Based on the trailing twelve months to March 2022).

So, DYNAM JAPAN HOLDINGS has an ROCE of 4.3%. On its own that's a low return, but compared to the average of 1.8% generated by the Hospitality industry, it's much better.

See our latest analysis for DYNAM JAPAN HOLDINGS

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

What Does the ROCE Trend For DYNAM JAPAN HOLDINGS Tell Us?

When we looked at the ROCE trend at DYNAM JAPAN HOLDINGS, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 4.3% from 9.5% 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 DYNAM JAPAN HOLDINGS' ROCE

To conclude, we've found that DYNAM JAPAN HOLDINGS is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 29% in the last five years. 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.

If you want to know some of the risks facing DYNAM JAPAN HOLDINGS we've found 2 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.

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.