Investors Could Be Concerned With Ningbo Marine's (SHSE:600798) Returns On Capital

What financial metrics can indicate to us that a company is maturing or even in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. So after we looked into Ningbo Marine (SHSE:600798), the trends above didn't look too great.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Ningbo Marine is:

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

0.029 = CN¥177m ÷ (CN¥6.8b - CN¥685m) (Based on the trailing twelve months to September 2023).

So, Ningbo Marine has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Shipping industry average of 6.5%.

Check out our latest analysis for Ningbo Marine

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 Ningbo Marine has performed in the past in other metrics, you can view this free graph of Ningbo Marine's past earnings, revenue and cash flow.

What Can We Tell From Ningbo Marine's ROCE Trend?

In terms of Ningbo Marine's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 12% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Ningbo Marine to turn into a multi-bagger.

In Conclusion...

In summary, it's unfortunate that Ningbo Marine is generating lower returns from the same amount of capital. Long term shareholders who've owned the stock over the last five years have experienced a 22% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Ningbo Marine does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

While Ningbo Marine 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.