The Return Trends At Snowman Logistics (NSE:SNOWMAN) Look Promising

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. 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 when we looked at Snowman Logistics (NSE:SNOWMAN) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Snowman Logistics:

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

0.031 = ₹210m ÷ (₹7.3b - ₹601m) (Based on the trailing twelve months to June 2022).

So, Snowman Logistics has an ROCE of 3.1%. Ultimately, that's a low return and it under-performs the Logistics industry average of 17%.

See 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 want to delve into the historical earnings, revenue and cash flow of Snowman Logistics, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Snowman Logistics is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 3.1% on its capital. In addition to that, Snowman Logistics is employing 22% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

What We Can Learn From Snowman Logistics' ROCE

Long story short, we're delighted to see that Snowman Logistics' reinvestment activities have paid off and the company is now profitable. Astute investors may have an opportunity here because the stock has declined 27% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we found 3 warning signs for Snowman Logistics (1 shouldn't be ignored) you should be aware of.

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.