Here's What To Make Of Ship Healthcare Holdings' (TSE:3360) Decelerating Rates Of Return

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. However, after briefly looking over the numbers, we don't think Ship Healthcare Holdings (TSE:3360) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

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 Ship Healthcare Holdings:

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

0.11 = JP¥23b ÷ (JP¥362b - JP¥160b) (Based on the trailing twelve months to September 2024).

So, Ship Healthcare Holdings has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Healthcare industry average of 7.9% it's much better.

View our latest analysis for Ship Healthcare Holdings

In the above chart we have measured Ship Healthcare Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Ship Healthcare Holdings for free.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for Ship Healthcare Holdings' returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Ship Healthcare Holdings doesn't end up being a multi-bagger in a few years time.

On a side note, Ship Healthcare Holdings' current liabilities are still rather high at 44% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On Ship Healthcare Holdings' ROCE

We can conclude that in regards to Ship Healthcare Holdings' returns on capital employed and the trends, there isn't much change to report on. And investors appear hesitant that the trends will pick up because the stock has fallen 12% in the last five years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Ship Healthcare Holdings could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 3360 on our platform quite valuable.

While Ship Healthcare Holdings 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.