Is There More Growth In Store For Seamec's (NSE:SEAMECLTD) Returns On Capital?

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings back into the business at ever-higher rates of return. So when we looked at Seamec (NSE:SEAMECLTD) 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 Seamec is:

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

0.18 = ₹1.2b ÷ (₹8.4b - ₹1.9b) (Based on the trailing twelve months to March 2020).

Therefore, Seamec has an ROCE of 18%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Energy Services industry average of 17%.

See our latest analysis for Seamec

Historical performance is a great place to start when researching a stock so above you can see the gauge for Seamec's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Seamec, check out these free graphs here.

How Are Returns Trending?

Seamec's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 346% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line On Seamec's ROCE

To bring it all together, Seamec has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these trends are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

While Seamec looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SEAMECLTD is currently trading for a fair price.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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.
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