The Return Trends At Nagano Keiki (TSE:7715) Look Promising

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Nagano Keiki (TSE:7715) looks quite promising in regards to its trends of return on capital.

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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 Nagano Keiki is:

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

0.13 = JP¥6.8b ÷ (JP¥75b - JP¥21b) (Based on the trailing twelve months to December 2024).

Thus, Nagano Keiki has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.0% generated by the Electronic industry.

Check out our latest analysis for Nagano Keiki

Above you can see how the current ROCE for Nagano Keiki compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Nagano Keiki .

How Are Returns Trending?

The trends we've noticed at Nagano Keiki are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. The amount of capital employed has increased too, by 75%. So we're very much inspired by what we're seeing at Nagano Keiki thanks to its ability to profitably reinvest capital.

Our Take On Nagano Keiki's ROCE

To sum it up, Nagano Keiki has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 158% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

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

While Nagano Keiki isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.