Returns On Capital At NIKKON HoldingsLtd (TSE:9072) Have Stalled

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at NIKKON HoldingsLtd (TSE:9072), it didn't seem to tick all of these boxes.

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What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for NIKKON HoldingsLtd:

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

0.068 = JP¥23b ÷ (JP¥406b - JP¥64b) (Based on the trailing twelve months to December 2024).

Therefore, NIKKON HoldingsLtd has an ROCE of 6.8%. In absolute terms, that's a low return, but it's much better than the Transportation industry average of 5.1%.

See our latest analysis for NIKKON HoldingsLtd

Above you can see how the current ROCE for NIKKON HoldingsLtd 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 NIKKON HoldingsLtd .

The Trend Of ROCE

There are better returns on capital out there than what we're seeing at NIKKON HoldingsLtd. Over the past five years, ROCE has remained relatively flat at around 6.8% and the business has deployed 39% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On NIKKON HoldingsLtd's ROCE

In summary, NIKKON HoldingsLtd has simply been reinvesting capital and generating the same low rate of return as before. Yet to long term shareholders the stock has gifted them an incredible 184% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One more thing, we've spotted 1 warning sign facing NIKKON HoldingsLtd that you might find interesting.

While NIKKON HoldingsLtd 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. 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.