Shareholders Would Enjoy A Repeat Of Nomura Micro Science's (TSE:6254) Recent Growth In Returns

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Nomura Micro Science (TSE:6254) looks great, so lets see what the trend can tell us.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Nomura Micro Science, this is the formula:

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

0.44 = JP¥12b ÷ (JP¥61b - JP¥34b) (Based on the trailing twelve months to December 2023).

Thus, Nomura Micro Science has an ROCE of 44%. In absolute terms that's a great return and it's even better than the Machinery industry average of 7.9%.

Check out our latest analysis for Nomura Micro Science

In the above chart we have measured Nomura Micro Science's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Nomura Micro Science for free.

So How Is Nomura Micro Science's ROCE Trending?

Investors would be pleased with what's happening at Nomura Micro Science. The data shows that returns on capital have increased substantially over the last five years to 44%. The amount of capital employed has increased too, by 172%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a separate but related note, it's important to know that Nomura Micro Science has a current liabilities to total assets ratio of 56%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

To sum it up, Nomura Micro Science has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

Nomura Micro Science does have some risks though, and we've spotted 1 warning sign for Nomura Micro Science that you might be interested in.

Nomura Micro Science 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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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.