Returns Are Gaining Momentum At SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft (HMSE:NEP)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's (HMSE:NEP) returns on capital, so let's have a look.

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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. Analysts use this formula to calculate it for SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft:

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

0.15 = €45m ÷ (€311m - €17m) (Based on the trailing twelve months to June 2024).

Therefore, SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 8.0% generated by the Shipping industry.

See our latest analysis for SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft

Historical performance is a great place to start when researching a stock so above you can see the gauge for SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's ROCE against it's prior returns. If you're interested in investigating SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's past further, check out this free graph covering SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's past earnings, revenue and cash flow .

So How Is SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's ROCE Trending?

SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 315% 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's ROCE

To sum it up, SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 120% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

One more thing, we've spotted 1 warning sign facing SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft that you might find interesting.

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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.