Investors Should Be Encouraged By COSCO SHIPPING Holdings' (HKG:1919) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. 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 COSCO SHIPPING Holdings' (HKG:1919) returns on capital, so let's have a look.

What Is 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. Analysts use this formula to calculate it for COSCO SHIPPING Holdings:

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

0.45 = CN¥169b ÷ (CN¥550b - CN¥177b) (Based on the trailing twelve months to September 2022).

Thus, COSCO SHIPPING Holdings has an ROCE of 45%. In absolute terms that's a great return and it's even better than the Shipping industry average of 15%.

Check out the opportunities and risks within the HK Shipping industry.

In the above chart we have measured COSCO SHIPPING Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

Investors would be pleased with what's happening at COSCO SHIPPING Holdings. The data shows that returns on capital have increased substantially over the last five years to 45%. The amount of capital employed has increased too, by 316%. So we're very much inspired by what we're seeing at COSCO SHIPPING Holdings thanks to its ability to profitably reinvest capital.

What We Can Learn From COSCO SHIPPING Holdings' ROCE

In summary, it's great to see that COSCO SHIPPING Holdings can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 262% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

COSCO SHIPPING Holdings does have some risks, we noticed 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

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.