Returns On Capital At Nippon Express HoldingsInc (TSE:9147) Paint A Concerning Picture

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Nippon Express HoldingsInc (TSE:9147) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

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 Nippon Express HoldingsInc is:

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

0.035 = JP¥53b ÷ (JP¥2.2t - JP¥653b) (Based on the trailing twelve months to March 2024).

Thus, Nippon Express HoldingsInc has an ROCE of 3.5%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 7.9%.

View our latest analysis for Nippon Express HoldingsInc

In the above chart we have measured Nippon Express HoldingsInc's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Nippon Express HoldingsInc .

What Does the ROCE Trend For Nippon Express HoldingsInc Tell Us?

We weren't thrilled with the trend because Nippon Express HoldingsInc's ROCE has reduced by 53% over the last five years, while the business employed 41% more capital. Usually this isn't ideal, but given Nippon Express HoldingsInc conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. Nippon Express HoldingsInc probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

The Bottom Line

From the above analysis, we find it rather worrisome that returns on capital and sales for Nippon Express HoldingsInc have fallen, meanwhile the business is employing more capital than it was five years ago. But investors must be expecting an improvement of sorts because over the last five yearsthe stock has delivered a respectable 58% return. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

On a separate note, we've found 3 warning signs for Nippon Express HoldingsInc you'll probably want to know about.

While Nippon Express HoldingsInc 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.