What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Portuaria Cabo Froward (SNSE:FROWARD) looks quite promising in regards to its trends of return on capital.
What is 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 Portuaria Cabo Froward, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = US$13m ÷ (US$113m - US$9.9m) (Based on the trailing twelve months to September 2020).
Therefore, Portuaria Cabo Froward has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Infrastructure industry average of 9.5% it's much better.
Check out our latest analysis for Portuaria Cabo Froward
Historical performance is a great place to start when researching a stock so above you can see the gauge for Portuaria Cabo Froward's ROCE against it's prior returns. If you're interested in investigating Portuaria Cabo Froward's past further, check out this free graph of past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
The trends we've noticed at Portuaria Cabo Froward are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 13%. The amount of capital employed has increased too, by 23%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
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. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
If you want to continue researching Portuaria Cabo Froward, you might be interested to know about the 2 warning signs that our analysis has discovered.
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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About SNSE:FROWARD
Flawless balance sheet average dividend payer.
