Returns Are Gaining Momentum At COSCO SHIPPING Energy Transportation (HKG:1138)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, COSCO SHIPPING Energy Transportation (HKG:1138) looks quite promising in regards to its trends of return on capital.

Understanding 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. Analysts use this formula to calculate it for COSCO SHIPPING Energy Transportation:

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

0.093 = CN¥5.7b ÷ (CN¥71b - CN¥9.8b) (Based on the trailing twelve months to June 2023).

So, COSCO SHIPPING Energy Transportation has an ROCE of 9.3%. On its own that's a low return, but compared to the average of 6.9% generated by the Oil and Gas industry, it's much better.

See our latest analysis for COSCO SHIPPING Energy Transportation

In the above chart we have measured COSCO SHIPPING Energy Transportation's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for COSCO SHIPPING Energy Transportation.

What Does the ROCE Trend For COSCO SHIPPING Energy Transportation Tell Us?

COSCO SHIPPING Energy Transportation is showing promise given that its ROCE is trending up and to the right. 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 934% 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On COSCO SHIPPING Energy Transportation's ROCE

In summary, we're delighted to see that COSCO SHIPPING Energy Transportation has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a separate note, we've found 1 warning sign for COSCO SHIPPING Energy Transportation you'll probably want to know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.