Here's What NSD's (TSE:9759) Strong Returns On Capital Mean

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over NSD's (TSE:9759) trend of ROCE, we really liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on NSD is:

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

0.23 = JP¥16b ÷ (JP¥87b - JP¥15b) (Based on the trailing twelve months to December 2024).

Thus, NSD has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 16% earned by companies in a similar industry.

See our latest analysis for NSD

In the above chart we have measured NSD'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 NSD for free.

What Can We Tell From NSD's ROCE Trend?

NSD deserves to be commended in regards to it's returns. Over the past five years, ROCE has remained relatively flat at around 23% and the business has deployed 60% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. You'll see this when looking at well operated businesses or favorable business models.

What We Can Learn From NSD's ROCE

In summary, we're delighted to see that NSD has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. On top of that, the stock has rewarded shareholders with a remarkable 143% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for 9759 on our platform that is definitely worth checking out.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.