Investors Will Want Nakabohtec Corrosion ProtectingLtd's (TYO:1787) Growth In ROCE To Persist

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. Speaking of which, we noticed some great changes in Nakabohtec Corrosion ProtectingLtd's (TYO:1787) returns on capital, so let's have a look.

Understanding 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 Nakabohtec Corrosion ProtectingLtd is:

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

0.16 = JP¥1.3b ÷ (JP¥10b - JP¥2.5b) (Based on the trailing twelve months to December 2020).

So, Nakabohtec Corrosion ProtectingLtd has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Construction industry average of 10% it's much better.

See our latest analysis for Nakabohtec Corrosion ProtectingLtd

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 Nakabohtec Corrosion ProtectingLtd's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Nakabohtec Corrosion ProtectingLtd has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 44% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Nakabohtec Corrosion ProtectingLtd's ROCE

In summary, we're delighted to see that Nakabohtec Corrosion ProtectingLtd has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know about the risks facing Nakabohtec Corrosion ProtectingLtd, we've discovered 1 warning sign that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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