Orient Overseas (International) (HKG:316) Is Doing The Right Things To Multiply Its Share Price

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Orient Overseas (International) (HKG:316) looks quite promising in regards to its trends of return on capital.

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 Orient Overseas (International) is:

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

0.068 = US$899m ÷ (US$16b - US$2.4b) (Based on the trailing twelve months to December 2023).

Therefore, Orient Overseas (International) has an ROCE of 6.8%. Even though it's in line with the industry average of 6.6%, it's still a low return by itself.

Check out our latest analysis for Orient Overseas (International)

In the above chart we have measured Orient Overseas (International)'s prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Orient Overseas (International) .

The Trend Of ROCE

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 6.8%. The amount of capital employed has increased too, by 55%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Orient Overseas (International)'s ROCE

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 Orient Overseas (International) has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing: We've identified 4 warning signs with Orient Overseas (International) (at least 2 which are a bit concerning) , and understanding them would certainly be useful.

While Orient Overseas (International) isn't earning the highest return, check out this free list of companies that are 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.