Otsuka Pharmaceutical (TSE 4768)’s return trends are not attractive

If you’re not sure where to start when searching for your next multi-bagger, here are some key trends to keep an eye on. return Return on Invested Capital (ROCE) is increasing, and secondly, base They invest 100% of the capital they put in. Simply put, these types of businesses are compound interest machines, which means they continually reinvest their earnings at high rates of return. Otsuka’s (TSE:4768) We’re very pleased with the ROCE trend.

What is Return on Invested Capital (ROCE)?

For those unfamiliar, ROCE is a metric that assesses how much pre-tax profit (as a percentage) a company earns on the capital invested in its business. In the case of Otsuka Pharmaceutical, the formula is:

Return on Invested Capital = Earnings Before Interest and Taxes (EBIT) ÷ (Total Assets – Current Liabilities)

0.18 = 63 billion yen ÷ (590 billion yen – 245 billion yen) (Based on the trailing 12 months ending March 2024).

So, Otsuka Pharmaceutical’s ROCE is 18%. This is a relatively normal return on capital, around 16% that the IT industry generates.

See the latest analysis for Otsuka

In the chart above we’ve measured Otsuka Pharmaceutical’s historical ROCE against its past performance, but the future is arguably more important – if you’d like to see what analysts are predicting going forward you can take a look at this free analyst report on Otsuka Pharmaceutical.

What does Otsuka Pharmaceutical’s ROCE trend indicate?

Return on capital is good, but not very volatile. The company has deployed over 43% of its capital over the past five years, and its return on capital has remained stable at 18%. 18% is a pretty standard return, and it offers some comfort knowing that Otsuka Pharmaceutical is consistently earning this amount. Over the long term, such a return may not be all that attractive, but if consistent, it can be rewarded in terms of share price return.

Another thing to note is that Otsuka Pharmaceutical has a high current liability to total asset ratio of 42%. This may pose some risk as the company is fundamentally quite dependent on suppliers and other short-term creditors to run its business. While not necessarily a bad thing, the lower this ratio is, the better.

Conclusion

The main thing to remember is that Otsuka Pharmaceutical has proven its ability to continually reinvest and maintain a respectable rate of return. And since the share price has risen significantly over the past five years, the market seems to expect this trend to continue. So, while investors may be factoring in potential positive trends, we still think this stock is worth continuing to research.

Otsuka doesn’t stand out as much in this regard, but it’s still worth looking at whether the company is trading at an attractive price. Free estimate of the intrinsic value of 4768 On our platform.

For those who want to invest A solid company, Check this out free A list of companies with strong balance sheets and high return on equity.

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This article by Simply Wall St is general in nature. We use only unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives, or your financial situation. We seek to provide long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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