HMMLtd (KRX:011200) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at HMMLtd (KRX:011200) so let's look a bit deeper.

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 HMMLtd is:

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

0.094 = ₩2.6t ÷ (₩30t - ₩2.3t) (Based on the trailing twelve months to September 2024).

So, HMMLtd has an ROCE of 9.4%. In absolute terms, that's a low return, but it's much better than the Shipping industry average of 7.7%.

See our latest analysis for HMMLtd

In the above chart we have measured HMMLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for HMMLtd .

What Does the ROCE Trend For HMMLtd Tell Us?

The fact that HMMLtd is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 9.4% on its capital. And unsurprisingly, like most companies trying to break into the black, HMMLtd is utilizing 437% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 7.9%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

In Conclusion...

To the delight of most shareholders, HMMLtd has now broken into profitability. Since the stock has returned a staggering 427% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if HMMLtd can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing HMMLtd we've found 3 warning signs (1 is concerning!) that you should be aware of before investing here.

While HMMLtd 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.