Nisun International Enterprise Development Group's (NASDAQ:NISN) Returns On Capital Are Heading Higher

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Nisun International Enterprise Development Group (NASDAQ:NISN) and its trend of ROCE, we really liked what we saw.

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 Nisun International Enterprise Development Group:

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

0.12 = US$24m ÷ (US$269m - US$59m) (Based on the trailing twelve months to June 2024).

Thus, Nisun International Enterprise Development Group has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Software industry average of 8.2% it's much better.

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 Nisun International Enterprise Development Group's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

The fact that Nisun International Enterprise Development Group is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 12% which is a sight for sore eyes. In addition to that, Nisun International Enterprise Development Group is employing 480% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

One more thing to note, Nisun International Enterprise Development Group has decreased current liabilities to 22% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Key Takeaway

To the delight of most shareholders, Nisun International Enterprise Development Group has now broken into profitability. However the stock is down a substantial 87% in the last five years so there could be other areas of the business hurting its prospects. Still, it's worth doing some further research to see if the trends will continue into the future.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Nisun International Enterprise Development Group (of which 1 can't be ignored!) that you should know about.

While Nisun International Enterprise Development Group 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.