Investors Will Want Snowman Logistics' (NSE:SNOWMAN) Growth In ROCE To Persist

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Snowman Logistics (NSE:SNOWMAN) looks quite promising in regards to its trends of return on capital.

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. The formula for this calculation on Snowman Logistics is:

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

0.041 = ₹265m ÷ (₹7.2b - ₹805m) (Based on the trailing twelve months to September 2022).

Therefore, Snowman Logistics has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Logistics industry average of 14%.

View our latest analysis for Snowman Logistics

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

What Can We Tell From Snowman Logistics' ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 4.1%. Basically the business is earning more per dollar of capital invested and in addition to that, 21% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

All in all, it's terrific to see that Snowman Logistics is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 37% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to continue researching Snowman Logistics, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Snowman Logistics isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.