If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in COSCO SHIPPING Ports' (HKG:1199) returns on capital, so let's have a look.

Understanding 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 COSCO SHIPPING Ports, this is the formula:

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

0.022 = US$232m ÷ (US$12b - US$1.7b) (Based on the trailing twelve months to March 2022).

So, COSCO SHIPPING Ports has an ROCE of 2.2%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 6.0%.

Check out our latest analysis for COSCO SHIPPING Ports

In the above chart we have measured COSCO SHIPPING Ports' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for COSCO SHIPPING Ports.

What Does the ROCE Trend For COSCO SHIPPING Ports Tell Us?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 2.2%. Basically the business is earning more per dollar of capital invested and in addition to that, 68% more capital is being employed now too. So we're very much inspired by what we're seeing at COSCO SHIPPING Ports thanks to its ability to profitably reinvest capital.

The Key Takeaway

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what COSCO SHIPPING Ports has. And since the stock has fallen 19% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

Like most companies, COSCO SHIPPING Ports does come with some risks, and we've found 2 warning signs that you should be aware of.

While COSCO SHIPPING Ports 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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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.