If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at COSCO SHIPPING International (Hong Kong) (HKG:517) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
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. The formula for this calculation on COSCO SHIPPING International (Hong Kong) is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.027 = HK$228m ÷ (HK$9.2b - HK$865m) (Based on the trailing twelve months to June 2023).
Thus, COSCO SHIPPING International (Hong Kong) has an ROCE of 2.7%. In absolute terms, that's a low return and it also under-performs the Infrastructure industry average of 7.2%.
See our latest analysis for COSCO SHIPPING International (Hong Kong)
Historical performance is a great place to start when researching a stock so above you can see the gauge for COSCO SHIPPING International (Hong Kong)'s ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of COSCO SHIPPING International (Hong Kong), check out these free graphs here.
The Trend Of ROCE
Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The figures show that over the last five years, ROCE has grown 58% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
Our Take On COSCO SHIPPING International (Hong Kong)'s ROCE
To bring it all together, COSCO SHIPPING International (Hong Kong) has done well to increase the returns it's generating from its capital employed. And with a respectable 77% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.
If you'd like to know about the risks facing COSCO SHIPPING International (Hong Kong), we've discovered 1 warning sign that you should be aware of.
While COSCO SHIPPING International (Hong Kong) 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.