Osaka Gas (TSE:9532) needs to do more to multiply its value in the future

Did you know that there are some financial metrics that can give clues to a potential multibagger? Among other things, we want to see two things: first, a growing return on capital employed (ROCE) and secondly an expansion of the Crowd of the capital employed. Ultimately, this shows that this is a company that reinvests profits with increasing returns. Although, as we looked Osaka Gas (TSE:9532) didn’t seem to tick all of those boxes.

Return on Capital Employed (ROCE): What is it?

For those who don’t know, ROCE is a measure of a company’s annual profit before tax (its return) relative to the capital employed in the company. The formula for this calculation at Osaka Gas is:

Return on capital = earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)

0.046 = 128 billion JP¥ ÷ (3.2 tons JP¥ – 467 billion JP¥) (Based on the last twelve months to June 2024).

Therefore, Osaka Gas has a ROCE of 4.6%. This is a low return on capital in itself, but is in line with the industry average return of 4.9%.

Check out our latest analysis for Osaka Gas

In the chart above, we have compared Osaka Gas’s ROCE with past performance, but the future is arguably more important. If you are interested, you can check out analyst forecasts in our free Analyst report for Osaka Gas.

How are returns developing?

There are better returns on capital than what we see at Osaka Gas. The company has deployed 58% more capital over the past five years and the return on capital has remained stable at 4.6%. Given that the company has increased the amount of capital employed, the investments being made simply do not seem to offer a high return on capital.

Our assessment of Osaka Gas’s ROCE

In short, although Osaka Gas has reinvested its capital, the earnings it has generated have not increased. However, the stock has delivered an incredible 107% return to long-term shareholders over the past five years, so the market is optimistic about the future. However, unless these underlying trends continue to be positive, we should not get our hopes up too much.

If you would like to research further about Osaka Gas, you may be interested in the 1 warning sign This is what our analysis has shown.

For those who like to invest in solid companies, look at this free List of companies with solid balance sheets and high returns on equity.

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