Returns On Capital Are Showing Encouraging Signs At Namura Shipbuilding (TSE:7014)
What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Namura Shipbuilding (TSE:7014) looks quite promising in regards to its trends of return on capital.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Namura Shipbuilding, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = JP¥25b ÷ (JP¥233b - JP¥86b) (Based on the trailing twelve months to September 2025).
Thus, Namura Shipbuilding has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 7.9% it's much better.
View our latest analysis for Namura Shipbuilding
In the above chart we have measured Namura Shipbuilding's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Namura Shipbuilding .
What Can We Tell From Namura Shipbuilding's ROCE Trend?
We're delighted to see that Namura Shipbuilding is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 17% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Namura Shipbuilding is utilizing 106% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
The Bottom Line
Long story short, we're delighted to see that Namura Shipbuilding's reinvestment activities have paid off and the company is now profitable. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Like most companies, Namura Shipbuilding does come with some risks, and we've found 1 warning sign that you should be aware of.
While Namura Shipbuilding 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.