Returns On Capital Are Showing Encouraging Signs At SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft (HMSE:NEP)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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, we've noticed some promising trends at SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft (HMSE:NEP) so let's look a bit deeper.

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. The formula for this calculation on SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft is:

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

0.087 = €24m ÷ (€292m - €15m) (Based on the trailing twelve months to June 2022).

Thus, SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft has an ROCE of 8.7%. Ultimately, that's a low return and it under-performs the Shipping industry average of 15%.

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 want to delve into the historical earnings, revenue and cash flow of SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft, check out these free graphs here.

The Trend Of ROCE

SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 479% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

In summary, we're delighted to see that SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 28% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing to note, we've identified 1 warning sign with SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft and understanding it should be part of your investment process.

While SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.