Returns At NGK Insulators (TSE:5333) Appear To Be Weighed Down

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. Having said that, from a first glance at NGK Insulators (TSE:5333) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

We've discovered 1 warning sign about NGK Insulators. View them for free.

What Is 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. To calculate this metric for NGK Insulators, this is the formula:

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

0.083 = JP¥80b ÷ (JP¥1.1t - JP¥179b) (Based on the trailing twelve months to March 2025).

Thus, NGK Insulators has an ROCE of 8.3%. Even though it's in line with the industry average of 7.9%, it's still a low return by itself.

See our latest analysis for NGK Insulators

Above you can see how the current ROCE for NGK Insulators compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering NGK Insulators for free.

What The Trend Of ROCE Can Tell Us

In terms of NGK Insulators' historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 8.3% for the last five years, and the capital employed within the business has risen 34% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

What We Can Learn From NGK Insulators' ROCE

As we've seen above, NGK Insulators' returns on capital haven't increased but it is reinvesting in the business. Although the market must be expecting these trends to improve because the stock has gained 44% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Like most companies, NGK Insulators does come with some risks, and we've found 1 warning sign that you should be aware of.

While NGK Insulators 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.