If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Samudera Shipping Line's (SGX:S56) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Samudera Shipping Line:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.49 = US$329m ÷ (US$888m - US$217m) (Based on the trailing twelve months to December 2022).
Thus, Samudera Shipping Line has an ROCE of 49%. That's a fantastic return and not only that, it outpaces the average of 6.5% earned by companies in a similar industry.
Check out our latest analysis for Samudera Shipping Line
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're interested in investigating Samudera Shipping Line's past further, check out this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
The trends we've noticed at Samudera Shipping Line are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 49%. The amount of capital employed has increased too, by 186%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
In Conclusion...
All in all, it's terrific to see that Samudera Shipping Line is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 774% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Samudera Shipping Line can keep these trends up, it could have a bright future ahead.
One more thing to note, we've identified 1 warning sign with Samudera Shipping Line and understanding it should be part of your investment process.