Can Shipping Corporation of India (NSE:SCI) Continue To Grow Its Returns On Capital?

There are a few key trends to look for if we want to identify the next multi-bagger. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Shipping Corporation of India (NSE:SCI) 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. The formula for this calculation on Shipping Corporation of India is:

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

0.076 = ₹7.5b ÷ (₹135b - ₹37b) (Based on the trailing twelve months to December 2020).

Thus, Shipping Corporation of India has an ROCE of 7.6%. On its own that's a low return, but compared to the average of 4.4% generated by the Shipping industry, it's much better.

See our latest analysis for Shipping Corporation of India

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 want to delve into the historical earnings, revenue and cash flow of Shipping Corporation of India, check out these free graphs here.

What Can We Tell From Shipping Corporation of India's ROCE Trend?

Shipping Corporation of India has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 75% over the last five years. 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line On Shipping Corporation of India's ROCE

As discussed above, Shipping Corporation of India appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a solid 86% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing Shipping Corporation of India, we've discovered 3 warning signs that you should be aware of.

While Shipping Corporation of India 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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