Should You Be Impressed By Infinity Logistics and Transport Ventures' (HKG:1442) Returns on Capital?

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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, when we ran our eye over Infinity Logistics and Transport Ventures' (HKG:1442) trend of ROCE, we liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. 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)

0.15 = RM36m ÷ (RM298m - RM54m) (Based on the trailing twelve months to June 2020).

So, Infinity Logistics and Transport Ventures has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Logistics industry average of 7.7% it's much better.

View our latest analysis for Infinity Logistics and Transport Ventures

Historical performance is a great place to start when researching a stock so above you can see the gauge for Infinity Logistics and Transport Ventures' ROCE against it's prior returns. If you're interested in investigating Infinity Logistics and Transport Ventures' past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Infinity Logistics and Transport Ventures' ROCE Trending?

While the current returns on capital are decent, they haven't changed much. Over the past three years, ROCE has remained relatively flat at around 15% and the business has deployed 156% more capital into its operations. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.

One more thing to note, even though ROCE has remained relatively flat over the last three years, the reduction in current liabilities to 18% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

In Conclusion...

To sum it up, Infinity Logistics and Transport Ventures has simply been reinvesting capital steadily, at those decent rates of return. And since the stock has risen strongly over the last year, it appears the market might expect this trend to continue. 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 come with some risks though, we found 5 warning signs in our investment analysis, and 1 of those is a bit concerning...

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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This article by Simply Wall St is general in nature. 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.
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