COSCO SHIPPING International (Hong Kong) (HKG:517) Is Experiencing Growth In Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in COSCO SHIPPING International (Hong Kong)'s (HKG:517) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for COSCO SHIPPING International (Hong Kong):

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

0.027 = HK$228m ÷ (HK$9.2b - HK$865m) (Based on the trailing twelve months to June 2023).

Therefore, COSCO SHIPPING International (Hong Kong) has an ROCE of 2.7%. In absolute terms, that's a low return and it also under-performs the Infrastructure industry average of 6.7%.

See our latest analysis for COSCO SHIPPING International (Hong Kong)

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating COSCO SHIPPING International (Hong Kong)'s past further, check out this free graph covering COSCO SHIPPING International (Hong Kong)'s past earnings, revenue and cash flow.

How Are Returns Trending?

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 58% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line On COSCO SHIPPING International (Hong Kong)'s ROCE

As discussed above, COSCO SHIPPING International (Hong Kong) appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if COSCO SHIPPING International (Hong Kong) can keep these trends up, it could have a bright future ahead.

Like most companies, COSCO SHIPPING International (Hong Kong) does come with some risks, and we've found 1 warning sign that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.