Nissin Foods HoldingsLtd (TSE:2897) Is Looking To Continue Growing Its Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, we've noticed some promising trends at Nissin Foods HoldingsLtd (TSE:2897) so let's look a bit deeper.

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Understanding 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 Nissin Foods HoldingsLtd, this is the formula:

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

0.083 = JP¥53b ÷ (JP¥868b - JP¥228b) (Based on the trailing twelve months to December 2024).

Thus, Nissin Foods HoldingsLtd has an ROCE of 8.3%. In absolute terms, that's a low return but it's around the Food industry average of 6.9%.

See our latest analysis for Nissin Foods HoldingsLtd

Above you can see how the current ROCE for Nissin Foods HoldingsLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Nissin Foods HoldingsLtd .

The Trend Of ROCE

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 8.3%. The amount of capital employed has increased too, by 43%. So we're very much inspired by what we're seeing at Nissin Foods HoldingsLtd thanks to its ability to profitably reinvest capital.

The Bottom Line On Nissin Foods HoldingsLtd's ROCE

To sum it up, Nissin Foods HoldingsLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has only returned 8.6% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

One more thing to note, we've identified 1 warning sign with Nissin Foods HoldingsLtd and understanding this should be part of your investment process.

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.