Why The 41% Return On Capital At Nihon Seiko (TSE:5729) Should Have Your Attention

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Nihon Seiko's (TSE:5729) returns on capital, so let's have a look.

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What Is 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 Nihon Seiko, this is the formula:

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

0.41 = JP¥6.1b ÷ (JP¥23b - JP¥7.9b) (Based on the trailing twelve months to June 2025).

Therefore, Nihon Seiko has an ROCE of 41%. That's a fantastic return and not only that, it outpaces the average of 6.3% earned by companies in a similar industry.

Check out our latest analysis for Nihon Seiko

Historical performance is a great place to start when researching a stock so above you can see the gauge for Nihon Seiko's ROCE against it's prior returns. If you're interested in investigating Nihon Seiko's past further, check out this free graph covering Nihon Seiko's past earnings, revenue and cash flow.

How Are Returns Trending?

Investors would be pleased with what's happening at Nihon Seiko. Over the last five years, returns on capital employed have risen substantially to 41%. Basically the business is earning more per dollar of capital invested and in addition to that, 84% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

All in all, it's terrific to see that Nihon Seiko is reaping the rewards from prior investments and is growing its capital base. And a remarkable 681% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, Nihon Seiko does come with some risks, and we've found 1 warning sign that you should be aware of.

Nihon Seiko 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.