Nissan Medical Industries (TLV:NISA) Shareholders Will Want The ROCE Trajectory To Continue

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 on that note, Nissan Medical Industries (TLV:NISA) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Nissan Medical Industries, this is the formula:

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

0.15 = ₪72m ÷ (₪729m - ₪234m) (Based on the trailing twelve months to June 2024).

Thus, Nissan Medical Industries has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 8.1% generated by the Medical Equipment industry.

Check out our latest analysis for Nissan Medical Industries

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Nissan Medical Industries has performed in the past in other metrics, you can view this free graph of Nissan Medical Industries' past earnings, revenue and cash flow.

What Can We Tell From Nissan Medical Industries' ROCE Trend?

Nissan Medical Industries' ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 45% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On Nissan Medical Industries' ROCE

To bring it all together, Nissan Medical Industries has done well to increase the returns it's generating from its capital employed. Considering the stock has delivered 3.6% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Nissan Medical Industries (of which 1 is significant!) that you should know about.

While Nissan Medical Industries may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.