Courage Investment Group's (HKG:1145) Returns On Capital Are Heading Higher

There are a few key trends to look for if we want to identify the next multi-bagger. 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 Courage Investment Group's (HKG:1145) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Courage Investment Group, this is the formula:

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

0.087 = US$5.8m ÷ (US$69m - US$2.8m) (Based on the trailing twelve months to June 2022).

Therefore, Courage Investment Group has an ROCE of 8.7%. In absolute terms, that's a low return and it also under-performs the Shipping industry average of 15%.

View our latest analysis for Courage Investment Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Courage Investment Group's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Courage Investment Group, check out these free graphs here.

So How Is Courage Investment Group's ROCE Trending?

Courage Investment Group has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 8.7% on its capital. And unsurprisingly, like most companies trying to break into the black, Courage Investment Group is utilizing 83% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a related note, the company's ratio of current liabilities to total assets has decreased to 4.0%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

In Conclusion...

To the delight of most shareholders, Courage Investment Group has now broken into profitability. Although the company may be facing some issues elsewhere since the stock has plunged 93% in the last five years. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

Courage Investment Group does have some risks though, and we've spotted 2 warning signs for Courage Investment Group that you might be interested in.

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.