Returns On Capital At Nisshin OilliO GroupLtd (TSE:2602) Have Stalled

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Nisshin OilliO GroupLtd (TSE:2602), we don't think it's current trends fit the mold of a multi-bagger.

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. Analysts use this formula to calculate it for Nisshin OilliO GroupLtd:

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

0.074 = JP¥21b ÷ (JP¥393b - JP¥110b) (Based on the trailing twelve months to March 2024).

Therefore, Nisshin OilliO GroupLtd has an ROCE of 7.4%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.3%.

View our latest analysis for Nisshin OilliO GroupLtd

In the above chart we have measured Nisshin OilliO GroupLtd'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 Nisshin OilliO GroupLtd for free.

How Are Returns Trending?

In terms of Nisshin OilliO GroupLtd's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 7.4% for the last five years, and the capital employed within the business has risen 45% 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.

The Bottom Line On Nisshin OilliO GroupLtd's ROCE

As we've seen above, Nisshin OilliO GroupLtd's 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 86% 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.

If you're still interested in Nisshin OilliO GroupLtd it's worth checking out our FREE intrinsic value approximation for 2602 to see if it's trading at an attractive price in other respects.

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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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.

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