Returns On Capital At Shipping Corporation of India (NSE:SCI) Have Hit The Brakes

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Shipping Corporation of India (NSE:SCI), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

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. To calculate this metric for Shipping Corporation of India, this is the formula:

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

0.05 = ₹5.6b ÷ (₹137b - ₹26b) (Based on the trailing twelve months to September 2021).

Therefore, Shipping Corporation of India has an ROCE of 5.0%. Ultimately, that's a low return and it under-performs the Shipping industry average of 23%.

See our latest analysis for Shipping Corporation of India

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

So How Is Shipping Corporation of India's ROCE Trending?

Over the past five years, Shipping Corporation of India's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Shipping Corporation of India in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Bottom Line On Shipping Corporation of India's ROCE

In a nutshell, Shipping Corporation of India has been trudging along with the same returns from the same amount of capital over the last five years. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 139% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Shipping Corporation of India could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

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.