Nippon Yusen Kabushiki Kaisha (TSE:9101) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. With that in mind, we've noticed some promising trends at Nippon Yusen Kabushiki Kaisha (TSE:9101) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Nippon Yusen Kabushiki Kaisha:

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

0.057 = JP¥191b ÷ (JP¥4.0t - JP¥666b) (Based on the trailing twelve months to December 2023).

Therefore, Nippon Yusen Kabushiki Kaisha has an ROCE of 5.7%. On its own, that's a low figure but it's around the 4.8% average generated by the Shipping industry.

View our latest analysis for Nippon Yusen Kabushiki Kaisha

Above you can see how the current ROCE for Nippon Yusen Kabushiki Kaisha 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 Nippon Yusen Kabushiki Kaisha .

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. Over the last five years, returns on capital employed have risen substantially to 5.7%. The amount of capital employed has increased too, by 125%. So we're very much inspired by what we're seeing at Nippon Yusen Kabushiki Kaisha thanks to its ability to profitably reinvest capital.

One more thing to note, Nippon Yusen Kabushiki Kaisha has decreased current liabilities to 17% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

What We Can Learn From Nippon Yusen Kabushiki Kaisha's ROCE

To sum it up, Nippon Yusen Kabushiki Kaisha 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 962% 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.

If you want to know some of the risks facing Nippon Yusen Kabushiki Kaisha we've found 3 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.