There Are Reasons To Feel Uneasy About Nippon Express HoldingsInc's (TSE:9147) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. In light of that, when we looked at Nippon Express HoldingsInc (TSE:9147) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Nippon Express HoldingsInc:

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

0.034 = JP¥52b ÷ (JP¥2.2t - JP¥666b) (Based on the trailing twelve months to June 2024).

Thus, Nippon Express HoldingsInc has an ROCE of 3.4%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 8.3%.

See our latest analysis for Nippon Express HoldingsInc

Above you can see how the current ROCE for Nippon Express HoldingsInc 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 Nippon Express HoldingsInc .

What The Trend Of ROCE Can Tell Us

Unfortunately, the trend isn't great with ROCE falling from 6.7% five years ago, while capital employed has grown 41%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. 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.

What We Can Learn From Nippon Express HoldingsInc's ROCE

Bringing it all together, while we're somewhat encouraged by Nippon Express HoldingsInc's reinvestment in its own business, we're aware that returns are shrinking. Although the market must be expecting these trends to improve because the stock has gained 69% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

On a final note, we've found 3 warning signs for Nippon Express HoldingsInc that we think you should be aware of.

While Nippon Express HoldingsInc 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.