If you’re looking for a multi-bagger, there’s a few things to keep an eye out for. Typically, we’ll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Japan Tobacco (TSE:2914) and its ROCE trend, we weren’t exactly thrilled.
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Return On Capital Employed (ROCE): What Is It?
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 Japan Tobacco:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.054 = JP¥346b ÷ (JP¥8.3t – JP¥1.9t) (Based on the trailing twelve months to June 2025).
Therefore, Japan Tobacco has an ROCE of 5.4%. Ultimately, that’s a low return and it under-performs the Tobacco industry average of 19%.
Check out our latest analysis for Japan Tobacco
TSE:2914 Return on Capital Employed September 18th 2025
Above you can see how the current ROCE for Japan Tobacco compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’d like to see what analysts are forecasting going forward, you should check out our free analyst report for Japan Tobacco .
How Are Returns Trending?
In terms of Japan Tobacco’s historical ROCE movements, the trend isn’t fantastic. Around five years ago the returns on capital were 9.2%, but since then they’ve fallen to 5.4%. 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 may take some time before the company starts to see any change in earnings from these investments.
The Key Takeaway
To conclude, we’ve found that Japan Tobacco is reinvesting in the business, but returns have been falling. Yet to long term shareholders the stock has gifted them an incredible 227% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn’t hold our breath on it being a multi-bagger going forward.
If you want to know some of the risks facing Japan Tobacco we’ve found 2 warning signs (1 doesn’t sit too well with us!) that you should be aware of before investing here.
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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.
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