Returns on Capital Paint A Bright Future For Hainan Strait ShippingLtd (SZSE:002320)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Hainan Strait ShippingLtd (SZSE:002320) looks great, so lets see what the trend can tell us.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Hainan Strait ShippingLtd:

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

0.21 = CN¥1.4b ÷ (CN¥7.8b - CN¥753m) (Based on the trailing twelve months to September 2024).

Therefore, Hainan Strait ShippingLtd has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Shipping industry average of 8.8%.

See our latest analysis for Hainan Strait ShippingLtd

Above you can see how the current ROCE for Hainan Strait ShippingLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Hainan Strait ShippingLtd .

The Trend Of ROCE

Hainan Strait ShippingLtd is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 21%. Basically the business is earning more per dollar of capital invested and in addition to that, 88% more capital is being employed now too. So we're very much inspired by what we're seeing at Hainan Strait ShippingLtd thanks to its ability to profitably reinvest capital.

The Bottom Line On Hainan Strait ShippingLtd's ROCE

In summary, it's great to see that Hainan Strait ShippingLtd can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 50% return over the last five years. 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.

If you want to continue researching Hainan Strait ShippingLtd, you might be interested to know about the 1 warning sign that our analysis has discovered.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.