Returns On Capital Are Showing Encouraging Signs At Ocean Line Port Development (HKG:8502)

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Ocean Line Port Development (HKG:8502) looks quite promising in regards to its trends of return on capital.

What is 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. Analysts use this formula to calculate it for Ocean Line Port Development:

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

0.14 = CN¥78m ÷ (CN¥676m - CN¥115m) (Based on the trailing twelve months to September 2021).

Thus, Ocean Line Port Development has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 8.3% generated by the Infrastructure industry.

Check out our latest analysis for Ocean Line Port Development

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'd like to look at how Ocean Line Port Development has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Ocean Line Port Development's ROCE Trending?

We like the trends that we're seeing from Ocean Line Port Development. Over the last five years, returns on capital employed have risen substantially to 14%. 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 63%. 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.

Our Take On Ocean Line Port Development's ROCE

To sum it up, Ocean Line Port Development has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Astute investors may have an opportunity here because the stock has declined 12% in the last three years. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know about the risks facing Ocean Line Port Development, we've discovered 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.