Should We Be Excited About The Trends Of Returns At Nissan Medical Industries (TLV:NISA)?

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Nissan Medical Industries (TLV:NISA) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. The formula for this calculation on Nissan Medical Industries is:

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

0.17 = ₪88m ÷ (₪719m - ₪191m) (Based on the trailing twelve months to September 2020).

So, Nissan Medical Industries has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 12% 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're interested in investigating Nissan Medical Industries' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Nissan Medical Industries Tell Us?

There hasn't been much to report for Nissan Medical Industries' returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Nissan Medical Industries in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Bottom Line

We can conclude that in regards to Nissan Medical Industries' returns on capital employed and the trends, there isn't much change to report on. And in the last five years, the stock has given away 13% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

On a separate note, we've found 2 warning signs for Nissan Medical Industries you'll probably want to 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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