Under The Bonnet, Singamas Container Holdings' (HKG:716) Returns Look Impressive

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Singamas Container Holdings' (HKG:716) returns on capital, so let's have a look.

What is 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 Singamas Container Holdings is:

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

0.33 = US$246m ÷ (US$994m - US$243m) (Based on the trailing twelve months to December 2021).

So, Singamas Container Holdings has an ROCE of 33%. In absolute terms that's a great return and it's even better than the Machinery industry average of 8.8%.

Check out our latest analysis for Singamas Container Holdings

Above you can see how the current ROCE for Singamas Container Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Singamas Container Holdings.

What Can We Tell From Singamas Container Holdings' ROCE Trend?

Singamas Container Holdings has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 228% whilst employing roughly the same amount of capital. 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

One more thing to note, Singamas Container Holdings has decreased current liabilities to 24% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

Our Take On Singamas Container Holdings' ROCE

To sum it up, Singamas Container Holdings is collecting higher returns from the same amount of capital, and that's impressive. And with a respectable 72% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Singamas Container Holdings can keep these trends up, it could have a bright future ahead.

Like most companies, Singamas Container Holdings does come with some risks, and we've found 2 warning signs that you should be aware of.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.