Accuracy Shipping (NSE:ACCURACY) Is Reinvesting At Lower Rates Of Return

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Accuracy Shipping (NSE:ACCURACY), it didn't seem to tick all of these boxes.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Accuracy Shipping:

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

0.13 = ₹171m ÷ (₹2.0b - ₹694m) (Based on the trailing twelve months to March 2021).

Therefore, Accuracy Shipping has an ROCE of 13%. That's a pretty standard return and it's in line with the industry average of 13%.

See our latest analysis for Accuracy Shipping

Historical performance is a great place to start when researching a stock so above you can see the gauge for Accuracy Shipping's ROCE against it's prior returns. If you'd like to look at how Accuracy Shipping has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Accuracy Shipping's ROCE Trending?

On the surface, the trend of ROCE at Accuracy Shipping doesn't inspire confidence. Over the last five years, returns on capital have decreased to 13% from 24% five years ago. However it looks like Accuracy Shipping might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, Accuracy Shipping has done well to pay down its current liabilities to 35% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

Our Take On Accuracy Shipping's ROCE

To conclude, we've found that Accuracy Shipping is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 15% to shareholders over the last three years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

On a separate note, we've found 3 warning signs for Accuracy Shipping you'll probably want to know about.

While Accuracy Shipping may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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