Under The Bonnet, Nissan Medical Industries' (TLV:NISA) Returns Look Impressive

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 when we looked at the ROCE trend of Nissan Medical Industries (TLV:NISA) we really liked what we saw.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Nissan Medical Industries:

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

0.22 = ₪110m ÷ (₪701m - ₪195m) (Based on the trailing twelve months to December 2020).

Therefore, Nissan Medical Industries has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Medical Equipment industry average of 6.4%.

See our latest analysis for Nissan Medical Industries

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

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

Nissan Medical Industries has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 26% whilst employing roughly the same amount of capital. 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.

The Bottom Line On Nissan Medical Industries' ROCE

In summary, we're delighted to see that Nissan Medical Industries has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Given the stock has declined 32% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we've found 2 warning signs for Nissan Medical Industries that we think you should be aware of.

Nissan Medical Industries is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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