Slowing Rates Of Return At Ship Healthcare Holdings (TSE:3360) Leave Little Room For Excitement

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. However, after investigating Ship Healthcare Holdings (TSE:3360), we don't think it's current trends fit the mold of a multi-bagger.

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

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 Ship Healthcare Holdings:

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

0.12 = JP¥23b ÷ (JP¥370b - JP¥183b) (Based on the trailing twelve months to December 2023).

Thus, Ship Healthcare Holdings has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Healthcare industry average of 9.3% it's much better.

Check out our latest analysis for Ship Healthcare Holdings

Above you can see how the current ROCE for Ship Healthcare Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Ship Healthcare Holdings .

The Trend Of ROCE

Over the past five years, Ship Healthcare Holdings' ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Ship Healthcare Holdings doesn't end up being a multi-bagger in a few years time.

On a separate but related note, it's important to know that Ship Healthcare Holdings has a current liabilities to total assets ratio of 49%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Ship Healthcare Holdings' ROCE

In a nutshell, Ship Healthcare Holdings has been trudging along with the same returns from the same amount of capital over the last five years. And investors may be recognizing these trends since the stock has only returned a total of 15% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you're still interested in Ship Healthcare Holdings it's worth checking out our FREE intrinsic value approximation for 3360 to see if it's trading at an attractive price in other respects.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.