NanoRepro (ETR:NN6) Is Experiencing Growth In Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. So on that note, NanoRepro (ETR:NN6) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on NanoRepro is:

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

0.086 = €4.4m ÷ (€53m - €1.8m) (Based on the trailing twelve months to June 2022).

Thus, NanoRepro has an ROCE of 8.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.2%.

See our latest analysis for NanoRepro

Historical performance is a great place to start when researching a stock so above you can see the gauge for NanoRepro's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of NanoRepro, check out these free graphs here.

SWOT Analysis for NanoRepro

What The Trend Of ROCE Can Tell Us

The fact that NanoRepro is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 8.6% on its capital. And unsurprisingly, like most companies trying to break into the black, NanoRepro is utilizing 1,458% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line

To the delight of most shareholders, NanoRepro has now broken into profitability. Since the stock has returned a solid 78% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know about the risks facing NanoRepro, we've discovered 4 warning signs that you should be aware of.

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.