The Trend Of High Returns At COSCO SHIPPING Holdings (HKG:1919) Has Us Very Interested

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we're seeing at COSCO SHIPPING Holdings' (HKG:1919) look very promising so lets take 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. The formula for this calculation on COSCO SHIPPING Holdings is:

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

0.24 = CN¥84b ÷ (CN¥483b - CN¥136b) (Based on the trailing twelve months to June 2023).

Therefore, COSCO SHIPPING Holdings has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Shipping industry average of 11%.

View our latest analysis for COSCO SHIPPING Holdings

Above you can see how the current ROCE for COSCO SHIPPING Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for COSCO SHIPPING Holdings.

What Does the ROCE Trend For COSCO SHIPPING Holdings Tell Us?

We like the trends that we're seeing from COSCO SHIPPING Holdings. Over the last five years, returns on capital employed have risen substantially to 24%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 277%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what COSCO SHIPPING Holdings has. And a remarkable 483% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if COSCO SHIPPING Holdings can keep these trends up, it could have a bright future ahead.

One more thing: We've identified 2 warning signs with COSCO SHIPPING Holdings (at least 1 which is significant) , and understanding these would certainly be useful.

COSCO SHIPPING Holdings is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.