Returns At NSW (TSE:9739) Appear To Be Weighed Down

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. That's why when we briefly looked at NSW's (TSE:9739) ROCE trend, we were pretty happy with what we saw.

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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. To calculate this metric for NSW, this is the formula:

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

0.16 = JP¥6.1b ÷ (JP¥45b - JP¥7.2b) (Based on the trailing twelve months to December 2024).

Thus, NSW has an ROCE of 16%. By itself that's a normal return on capital and it's in line with the industry's average returns of 16%.

View our latest analysis for NSW

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

What Can We Tell From NSW's ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 16% and the business has deployed 65% more capital into its operations. 16% is a pretty standard return, and it provides some comfort knowing that NSW has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

What We Can Learn From NSW's ROCE

To sum it up, NSW has simply been reinvesting capital steadily, at those decent rates of return. And the stock has followed suit returning a meaningful 70% to shareholders over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

While NSW doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for 9739 on our platform.

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.