The Return Trends At Nishimatsuya Chain (TSE:7545) Look Promising

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Nishimatsuya Chain's (TSE:7545) returns on capital, so let's have a look.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Nishimatsuya Chain, this is the formula:

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

0.13 = JP¥12b ÷ (JP¥145b - JP¥54b) (Based on the trailing twelve months to May 2024).

Therefore, Nishimatsuya Chain has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 11% generated by the Specialty Retail industry.

View our latest analysis for Nishimatsuya Chain

In the above chart we have measured Nishimatsuya Chain's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Nishimatsuya Chain .

The Trend Of ROCE

The trends we've noticed at Nishimatsuya Chain are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 13%. The amount of capital employed has increased too, by 41%. 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.

In Conclusion...

All in all, it's terrific to see that Nishimatsuya Chain is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

While Nishimatsuya Chain looks impressive, no company is worth an infinite price. The intrinsic value infographic for 7545 helps visualize whether it is currently trading for a fair price.

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.