Can Portuaria Cabo Froward (SNSE:FROWARD) Continue To Grow Its Returns On Capital?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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 Portuaria Cabo Froward (SNSE:FROWARD) 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. To calculate this metric for Portuaria Cabo Froward, this is the formula:

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

0.11 = US$12m ÷ (US$116m - US$13m) (Based on the trailing twelve months to December 2020).

Thus, Portuaria Cabo Froward has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 7.2% generated by the Infrastructure industry.

Check out our latest analysis for Portuaria Cabo Froward

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'd like to look at how Portuaria Cabo Froward has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Portuaria Cabo Froward's ROCE Trend?

We like the trends that we're seeing from Portuaria Cabo Froward. The data shows that returns on capital have increased substantially over the last five years to 11%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 24%. So we're very much inspired by what we're seeing at Portuaria Cabo Froward thanks to its ability to profitably reinvest capital.

Our Take On Portuaria Cabo Froward's ROCE

To sum it up, Portuaria Cabo Froward has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 510% 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 Portuaria Cabo Froward can keep these trends up, it could have a bright future ahead.

On a final note, we've found 2 warning signs for Portuaria Cabo Froward that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

When trading Portuaria Cabo Froward or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.