We Like These Underlying Return On Capital Trends At Nagano Keiki (TSE:7715)

What trends should we look for it we want to identify stocks that can 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. So on that note, Nagano Keiki (TSE:7715) looks quite promising in regards to its trends of return on capital.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Nagano Keiki, this is the formula:

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

0.16 = JP¥7.5b ÷ (JP¥69b - JP¥21b) (Based on the trailing twelve months to December 2023).

Therefore, Nagano Keiki has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 9.7% it's much better.

See 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'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Nagano Keiki .

What The Trend Of ROCE Can Tell Us

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 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 51% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

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. And a remarkable 241% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

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.