Nihon Trim (TSE:6788) needs to do more to multiply its value in the future

If you are looking for a multi-bagger, there are a few things to look out for. In a perfect world, we would like to see a company investing more capital into its business and ideally the returns generated from that capital also increase. Ultimately, this shows that it is a company that is reinvesting profits with increasing returns. That is why we have taken a quick look Nihon Trims (TSE:6788) ROCE trend, we were pretty pleased with what we saw.

Return on Capital Employed (ROCE): What is it?

Just to clarify in case you aren’t sure, ROCE is a ratio that evaluates how much profit before tax (in percent) a company generates with the capital invested in its business. To calculate this ratio for Nihon Trim, the formula is:

Return on capital = earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)

0.12 = JP¥3.1 billion ÷ (JP¥32 billion – JP¥6.6 billion) (Based on the last twelve months to March 2024).

So, Nihon Trim has a ROCE of 12%. This is a normal return in itself, but it is much better than the 6.6% achieved in the consumer goods industry.

Check out our latest analysis for Nihon Trim

Above you can see how the current ROCE for Nihon Trim compares to previous returns on capital, but there is only so much to infer from the past. If you want, you can look at the analysts’ forecasts that Nihon Trim has for free.

So how is Nihon Trim’s ROCE developing?

Although returns on capital are good, they have barely changed. The company has deployed 28% more capital over the past five years and the return on capital has remained stable at 12%. 12% is a fairly normal return and it is somewhat reassuring to know that Nihon Trim has consistently generated this amount. Stable returns of this magnitude can be unexciting, but if they can be sustained over the long term, they often provide shareholders with nice returns.

The conclusion on Nihon Trim’s ROCE

To sum up, Nihon Trim has simply been steadily reinvesting its capital and generating decent returns in the process. However, despite the favorable fundamentals, the stock has fallen 22% over the past five years, so there could be an opportunity here for smart investors. For this reason, we think this stock is worth investigating further as the fundamentals are attractive.

Finally, we found 1 warning sign for Nihon Trim that we think you should know.

While Nihon Trim may not be generating the highest returns right now, we have compiled a list of companies that are currently generating more than 25% return on equity. Check it out free List here.

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