Accuracy Shipping (NSE:ACCURACY) Looks To Prolong Its Impressive Returns

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Ergo, when we looked at the ROCE trends at Accuracy Shipping (NSE:ACCURACY), we liked what we saw.

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

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 Accuracy Shipping:

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

0.24 = ₹352m ÷ (₹2.3b - ₹810m) (Based on the trailing twelve months to September 2021).

Thus, Accuracy Shipping has an ROCE of 24%. In absolute terms that's a very respectable return and compared to the Logistics industry average of 20% it's pretty much on par.

View 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're interested in investigating Accuracy Shipping's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Accuracy Shipping's ROCE Trend?

It's hard not to be impressed by Accuracy Shipping's returns on capital. The company has employed 686% more capital in the last five years, and the returns on that capital have remained stable at 24%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Accuracy Shipping can keep this up, we'd be very optimistic about its future.

On a side note, Accuracy Shipping has done well to reduce current liabilities to 35% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line

In short, we'd argue Accuracy Shipping has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. On top of that, the stock has rewarded shareholders with a remarkable 289% return to those who've held over the last three years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a final note, we've found 2 warning signs for Accuracy Shipping that we think you should be aware of.

Accuracy Shipping is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.