Nasu Denki-Tekko's (TSE:5922) Returns Have Hit A Wall

Simply Wall St · 5d ago

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. However, after briefly looking over the numbers, we don't think Nasu Denki-Tekko (TSE:5922) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Our free stock report includes 2 warning signs investors should be aware of before investing in Nasu Denki-Tekko. Read for free now.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Nasu Denki-Tekko:

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

0.073 = JP¥2.8b ÷ (JP¥43b - JP¥5.4b) (Based on the trailing twelve months to December 2024).

Therefore, Nasu Denki-Tekko has an ROCE of 7.3%. Even though it's in line with the industry average of 6.5%, it's still a low return by itself.

See our latest analysis for Nasu Denki-Tekko

roce
TSE:5922 Return on Capital Employed April 15th 2025

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Nasu Denki-Tekko.

So How Is Nasu Denki-Tekko's ROCE Trending?

In terms of Nasu Denki-Tekko's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 7.3% for the last five years, and the capital employed within the business has risen 32% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

On a side note, Nasu Denki-Tekko has done well to reduce current liabilities to 13% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Key Takeaway

In conclusion, Nasu Denki-Tekko has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 44% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One more thing: We've identified 2 warning signs with Nasu Denki-Tekko (at least 1 which doesn't sit too well with us) , and understanding these would certainly be useful.

While Nasu Denki-Tekko isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.