There Are Reasons To Feel Uneasy About Nisun International Enterprise Development Group's (NASDAQ:NISN) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Although, when we looked at Nisun International Enterprise Development Group (NASDAQ:NISN), it didn't seem to tick all of these boxes.

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. Analysts use this formula to calculate it for Nisun International Enterprise Development Group:

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

0.19 = US$18m ÷ (US$143m - US$51m) (Based on the trailing twelve months to June 2021).

So, Nisun International Enterprise Development Group has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 9.5% generated by the Machinery industry.

See our latest analysis for Nisun International Enterprise Development Group

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Nisun International Enterprise Development Group has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Nisun International Enterprise Development Group's ROCE Trend?

In terms of Nisun International Enterprise Development Group's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 19% from 36% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Nisun International Enterprise Development Group. And long term investors must be optimistic going forward because the stock has returned a huge 822% to shareholders in the last three years. So should these growth trends continue, we'd be optimistic on the stock going forward.

On a separate note, we've found 2 warning signs for Nisun International Enterprise Development Group you'll probably want to know about.

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.

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.

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