Will The ROCE Trend At Nippon AntennaLtd (TYO:6930) Continue?

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Nippon AntennaLtd's (TYO:6930) 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. Analysts use this formula to calculate it for Nippon AntennaLtd:

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

0.031 = JP¥621m ÷ (JP¥23b - JP¥2.9b) (Based on the trailing twelve months to December 2020).

So, Nippon AntennaLtd has an ROCE of 3.1%. Ultimately, that's a low return and it under-performs the Communications industry average of 4.0%.

Check out our latest analysis for Nippon AntennaLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Nippon AntennaLtd's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Nippon AntennaLtd, check out these free graphs here.

How Are Returns Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 273% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line

As discussed above, Nippon AntennaLtd appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a solid 98% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Nippon AntennaLtd can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 2 warning signs with Nippon AntennaLtd and understanding these should be part of your investment process.

While Nippon AntennaLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. 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.
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