Shipping Corporation of India (NSE:SCI) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Shipping Corporation of India (NSE:SCI) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Shipping Corporation of India:

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

0.08 = ₹9.1b ÷ (₹144b - ₹30b) (Based on the trailing twelve months to September 2022).

Therefore, Shipping Corporation of India has an ROCE of 8.0%. In absolute terms, that's a low return and it also under-performs the Shipping industry average of 20%.

Check out our latest analysis for Shipping Corporation of India

Above you can see how the current ROCE for Shipping Corporation of India compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Shipping Corporation of India.

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

Shipping Corporation of India has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 500% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

Our Take On Shipping Corporation of India's ROCE

To sum it up, Shipping Corporation of India is collecting higher returns from the same amount of capital, and that's impressive. And with a respectable 59% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While Shipping Corporation of India looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SCI is currently trading for a fair price.

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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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.