Returns on Capital Paint A Bright Future For Pacific Basin Shipping (HKG:2343)

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. 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. With that in mind, the ROCE of Pacific Basin Shipping (HKG:2343) looks great, so lets see what the trend can tell us.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Pacific Basin Shipping is:

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

0.30 = US$726m ÷ (US$2.7b - US$357m) (Based on the trailing twelve months to December 2021).

Thus, Pacific Basin Shipping has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Shipping industry average of 10.0%.

View our latest analysis for Pacific Basin Shipping

Above you can see how the current ROCE for Pacific Basin Shipping compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Pacific Basin Shipping here for free.

The Trend Of ROCE

Pacific Basin Shipping has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 30% which is a sight for sore eyes. In addition to that, Pacific Basin Shipping is employing 29% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line

Long story short, we're delighted to see that Pacific Basin Shipping's reinvestment activities have paid off and the company is now profitable. And a remarkable 146% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to know some of the risks facing Pacific Basin Shipping we've found 6 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

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.