Returns On Capital Are Showing Encouraging Signs At Niraku GC Holdings (HKG:1245)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Niraku GC Holdings (HKG:1245) looks quite promising in regards to its trends of return on capital.

What Is 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. 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)

0.051 = JP¥2.8b ÷ (JP¥66b - JP¥12b) (Based on the trailing twelve months to March 2023).

Therefore, Niraku GC Holdings has an ROCE of 5.1%. On its own that's a low return on capital but it's in line with the industry's average returns of 4.6%.

See 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'd like to look at how Niraku GC Holdings has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Niraku GC Holdings' ROCE Trend?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 5.1%. The amount of capital employed has increased too, by 25%. So we're very much inspired by what we're seeing at Niraku GC Holdings thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, Niraku GC Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And since the stock has fallen 45% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we've found 3 warning signs for Niraku GC Holdings that we think you should be aware of.

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.