Under The Bonnet, Orient Overseas (International)'s (HKG:316) Returns Look Impressive

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. With that in mind, the ROCE of Orient Overseas (International) (HKG:316) looks great, so lets see what the trend can tell us.

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 Orient Overseas (International) is:

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

0.38 = US$5.2b ÷ (US$17b - US$2.8b) (Based on the trailing twelve months to June 2023).

Therefore, Orient Overseas (International) has an ROCE of 38%. In absolute terms that's a great return and it's even better than the Shipping industry average of 11%.

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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Orient Overseas (International)'s ROCE Trending?

We like the trends that we're seeing from Orient Overseas (International). Over the last five years, returns on capital employed have risen substantially to 38%. The amount of capital employed has increased too, by 64%. 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

To sum it up, Orient Overseas (International) has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 671% 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 Orient Overseas (International) can keep these trends up, it could have a bright future ahead.

Orient Overseas (International) does have some risks, we noticed 3 warning signs (and 2 which don't sit too well with us) we think you should know about.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.