NH Foods (TSE:2282) Might Be Having Difficulty Using Its Capital Effectively
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at NH Foods (TSE:2282), it didn't seem to tick all of these boxes.
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. The formula for this calculation on NH Foods is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.063 = JP¥47b ÷ (JP¥965b - JP¥225b) (Based on the trailing twelve months to September 2025).
Thus, NH Foods has an ROCE of 6.3%. On its own, that's a low figure but it's around the 7.3% average generated by the Food industry.
See our latest analysis for NH Foods
In the above chart we have measured NH Foods' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering NH Foods for free.
The Trend Of ROCE
We weren't thrilled with the trend because NH Foods' ROCE has reduced by 30% over the last five years, while the business employed 30% more capital. That being said, NH Foods raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. It's unlikely that all of the funds raised have been put to work yet, so as a consequence NH Foods might not have received a full period of earnings contribution from it.
In Conclusion...
To conclude, we've found that NH Foods is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 59% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
If you're still interested in NH Foods it's worth checking out our FREE intrinsic value approximation for 2282 to see if it's trading at an attractive price in other respects.
While NH Foods may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.