COSCO SHIPPING Development (HKG:2866) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. So on that note, COSCO SHIPPING Development (HKG:2866) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for COSCO SHIPPING Development, this is the formula:

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

0.073 = CN¥5.6b ÷ (CN¥122b - CN¥45b) (Based on the trailing twelve months to September 2021).

So, COSCO SHIPPING Development has an ROCE of 7.3%. On its own that's a low return, but compared to the average of 5.0% generated by the Trade Distributors industry, it's much better.

Check out our latest analysis for COSCO SHIPPING Development

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 want to delve into the historical earnings, revenue and cash flow of COSCO SHIPPING Development, check out these free graphs here.

So How Is COSCO SHIPPING Development's ROCE Trending?

COSCO SHIPPING Development'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 1,690% over the last five years. 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On COSCO SHIPPING Development's ROCE

To sum it up, COSCO SHIPPING Development is collecting higher returns from the same amount of capital, and that's impressive. Considering the stock has delivered 0.7% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for COSCO SHIPPING Development (of which 2 can't be ignored!) that you should know about.

While COSCO SHIPPING Development 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.