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The Return Trends At Dampskibsselskabet Norden (CPH:DNORD) Look Promising
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. With that in mind, we've noticed some promising trends at Dampskibsselskabet Norden (CPH:DNORD) so let's look a bit deeper.
Return On Capital Employed (ROCE): What Is It?
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 Dampskibsselskabet Norden:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.09 = US$141m ÷ (US$2.3b - US$794m) (Based on the trailing twelve months to September 2024).
Therefore, Dampskibsselskabet Norden has an ROCE of 9.0%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.7%.
See our latest analysis for Dampskibsselskabet Norden
In the above chart we have measured Dampskibsselskabet Norden's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Dampskibsselskabet Norden for free.
What The Trend Of ROCE Can Tell Us
Dampskibsselskabet Norden'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 132% over the last five years. 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 34% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.
What We Can Learn From Dampskibsselskabet Norden's ROCE
To bring it all together, Dampskibsselskabet Norden has done well to increase the returns it's generating from its capital employed. And a remarkable 272% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Dampskibsselskabet Norden can keep these trends up, it could have a bright future ahead.
One more thing: We've identified 3 warning signs with Dampskibsselskabet Norden (at least 1 which is potentially serious) , and understanding them would certainly be useful.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.
About CPSE:DNORD
Dampskibsselskabet Norden
A shipping company, owns and operates dry cargo and tanker vessels worldwide.
Flawless balance sheet, undervalued and pays a dividend.