Is Nippon Kanryu Industry (FKSE:1771) Likely To Turn Things Around?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Nippon Kanryu Industry (FKSE:1771) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Nippon Kanryu Industry is:

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

0.12 = JP¥900m ÷ (JP¥12b - JP¥4.5b) (Based on the trailing twelve months to September 2020).

So, Nippon Kanryu Industry has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Construction industry average of 10%.

See our latest analysis for Nippon Kanryu Industry

Historical performance is a great place to start when researching a stock so above you can see the gauge for Nippon Kanryu Industry's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Nippon Kanryu Industry, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

While the returns on capital are good, they haven't moved much. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 58% in that time. 12% is a pretty standard return, and it provides some comfort knowing that Nippon Kanryu Industry has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Our Take On Nippon Kanryu Industry's ROCE

In the end, Nippon Kanryu Industry has proven its ability to adequately reinvest capital at good rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Nippon Kanryu Industry does have some risks though, and we've spotted 1 warning sign for Nippon Kanryu Industry that you might be interested in.

While Nippon Kanryu Industry isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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