Snowman Logistics (NSE:SNOWMAN) Is Experiencing Growth In Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 when we looked at Snowman Logistics (NSE:SNOWMAN) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Snowman Logistics is:

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

0.06 = ₹394m ÷ (₹7.5b - ₹941m) (Based on the trailing twelve months to June 2024).

So, Snowman Logistics has an ROCE of 6.0%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 12%.

Check out 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 Snowman Logistics' past earnings, revenue and cash flow.

What Can We Tell From Snowman Logistics' ROCE Trend?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 6.0%. The amount of capital employed has increased too, by 31%. So we're very much inspired by what we're seeing at Snowman Logistics thanks to its ability to profitably reinvest capital.

The Key Takeaway

To sum it up, Snowman Logistics has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 97% 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. Therefore, we think it would be worth your time to check if these trends are going to continue.

Snowman Logistics does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

While Snowman Logistics 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.