Nissin ShojiLtd's (TSE:7490) Returns Have Hit A Wall

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Nissin ShojiLtd (TSE:7490) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

We've discovered 5 warning signs about Nissin ShojiLtd. View them for free.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Nissin ShojiLtd is:

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

0.0091 = JP¥308m ÷ (JP¥41b - JP¥7.1b) (Based on the trailing twelve months to December 2024).

So, Nissin ShojiLtd has an ROCE of 0.9%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 6.1%.

View our latest analysis for Nissin ShojiLtd

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Nissin ShojiLtd.

The Trend Of ROCE

The returns on capital haven't changed much for Nissin ShojiLtd in recent years. The company has consistently earned 0.9% for the last five years, and the capital employed within the business has risen 29% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Nissin ShojiLtd's ROCE

Long story short, while Nissin ShojiLtd has been reinvesting its capital, the returns that it's generating haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 33% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Nissin ShojiLtd (of which 1 doesn't sit too well with us!) that you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.