Investors Will Want Niraku GC Holdings' (HKG:1245) Growth In ROCE To Persist

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Niraku GC Holdings (HKG:1245) and its trend of ROCE, we really liked what we saw.

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Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Niraku GC Holdings:

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

0.06 = JP¥3.0b ÷ (JP¥64b - JP¥14b) (Based on the trailing twelve months to March 2025).

Thus, Niraku GC Holdings has an ROCE of 6.0%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 8.3%.

View our latest analysis for Niraku GC Holdings

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

What The Trend Of ROCE Can Tell Us

Niraku GC Holdings has not disappointed in regards to ROCE growth. The data shows that returns on capital have increased by 150% over the trailing five years. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 29% less capital than it was five years ago. Niraku GC Holdings may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

In Conclusion...

In the end, Niraku GC Holdings has proven it's capital allocation skills are good with those higher returns from less amount of capital. Since the stock has only returned 15% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One more thing, we've spotted 3 warning signs facing Niraku GC Holdings that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.