Nippon Ski Resort DevelopmentLtd (TSE:6040) Is Experiencing Growth In Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Nippon Ski Resort DevelopmentLtd (TSE:6040) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

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 Nippon Ski Resort DevelopmentLtd, this is the formula:

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

0.17 = JP¥1.5b ÷ (JP¥11b - JP¥1.8b) (Based on the trailing twelve months to October 2024).

Thus, Nippon Ski Resort DevelopmentLtd has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 9.7% generated by the Hospitality industry.

See our latest analysis for Nippon Ski Resort DevelopmentLtd

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'd like to look at how Nippon Ski Resort DevelopmentLtd has performed in the past in other metrics, you can view this free graph of Nippon Ski Resort DevelopmentLtd's past earnings, revenue and cash flow.

What Can We Tell From Nippon Ski Resort DevelopmentLtd's ROCE Trend?

The trends we've noticed at Nippon Ski Resort DevelopmentLtd are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 17%. The amount of capital employed has increased too, by 47%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Nippon Ski Resort DevelopmentLtd's ROCE

In summary, it's great to see that Nippon Ski Resort DevelopmentLtd can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with a respectable 67% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 1 warning sign facing Nippon Ski Resort DevelopmentLtd that you might find interesting.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.