If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. That's why when we briefly looked at Infinity Logistics and Transport Ventures' (HKG:1442) ROCE trend, we were pretty happy with what we saw.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Infinity Logistics and Transport Ventures is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = RM35m ÷ (RM297m - RM53m) (Based on the trailing twelve months to December 2020).
So, Infinity Logistics and Transport Ventures has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 9.8% generated by the Logistics industry.
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 Infinity Logistics and Transport Ventures, check out these free graphs here.
What Does the ROCE Trend For Infinity Logistics and Transport Ventures Tell Us?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past four years, ROCE has remained relatively flat at around 14% and the business has deployed 195% more capital into its operations. 14% is a pretty standard return, and it provides some comfort knowing that Infinity Logistics and Transport Ventures has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
On a side note, Infinity Logistics and Transport Ventures has done well to reduce current liabilities to 18% of total assets over the last four years. Effectively suppliers now fund less of the business, which can lower some elements of risk.
The main thing to remember is that Infinity Logistics and Transport Ventures has proven its ability to continually reinvest at respectable rates of return. And long term investors would be thrilled with the 220% return they've received over the last year. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.
Infinity Logistics and Transport Ventures does have some risks though, and we've spotted 1 warning sign for Infinity Logistics and Transport Ventures that you might be interested in.
While Infinity Logistics and Transport Ventures may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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