Returns On Capital Are Showing Encouraging Signs 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? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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.

Understanding Return On Capital Employed (ROCE)

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. 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)

0.15 = €43m ÷ (€304m - €21m) (Based on the trailing twelve months to June 2023).

Therefore, SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Shipping industry average of 16%.

Check out our latest analysis for SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft

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're interested in investigating SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's ROCE Trend?

SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 1,446% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

To sum it up, SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft is collecting higher returns from the same amount of capital, and that's impressive. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 24% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

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

While SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft 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.