Returns At Nu-World Holdings (JSE:NWL) Appear To Be Weighed Down

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, the ROCE of Nu-World Holdings (JSE:NWL) looks decent, right now, so lets see what the trend of returns can tell us.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Nu-World Holdings:

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

0.12 = R176m ÷ (R1.6b - R152m) (Based on the trailing twelve months to February 2021).

Therefore, Nu-World Holdings has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Consumer Durables industry average of 11%.

Check out our latest analysis for Nu-World Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Nu-World Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Nu-World Holdings, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 12% and the business has deployed 59% more capital into its operations. 12% is a pretty standard return, and it provides some comfort knowing that Nu-World Holdings has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 9.6% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

Our Take On Nu-World Holdings' ROCE

To sum it up, Nu-World Holdings has simply been reinvesting capital steadily, at those decent rates of return. And the stock has followed suit returning a meaningful 87% to shareholders over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a final note, we've found 2 warning signs for Nu-World Holdings that we think you should be aware of.

While Nu-World Holdings 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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