Shipping Corporation of India's (NSE:SCI) Returns On Capital Are Heading Higher

There are a few key trends to look for if we want to identify the next multi-bagger. 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. So on that note, Shipping Corporation of India (NSE:SCI) looks quite promising in regards to its trends of return on capital.

Understanding 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)

0.11 = ₹9.7b ÷ (₹114b - ₹28b) (Based on the trailing twelve months to March 2023).

Thus, Shipping Corporation of India has an ROCE of 11%. In absolute terms, that's a pretty standard return but compared to the Shipping industry average it falls behind.

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

SWOT Analysis for Shipping Corporation of India

What The Trend Of ROCE Can Tell Us

Shipping Corporation of India's ROCE growth is quite impressive. 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 1,674% over the last five years. 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

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. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 57% return over the last five years. 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 2 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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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.