The Trend Of High Returns At ADS Maritime Holding (OB:ADS) Has Us Very Interested

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of ADS Maritime Holding (OB:ADS) looks great, so lets see what the trend can tell us.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for ADS Maritime Holding, this is the formula:

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

0.31 = US$17m ÷ (US$57m - US$1.3m) (Based on the trailing twelve months to December 2020).

So, ADS Maritime Holding has an ROCE of 31%. That's a fantastic return and not only that, it outpaces the average of 9.0% earned by companies in a similar industry.

View our latest analysis for ADS Maritime Holding

In the above chart we have measured ADS Maritime Holding'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 report on analyst forecasts for the company.

What Can We Tell From ADS Maritime Holding's ROCE Trend?

We're pretty happy with how the ROCE has been trending at ADS Maritime Holding. The data shows that returns on capital have increased by 1,527% over the trailing one year. The company is now earning US$0.3 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 38% less than it was one year ago, which can be indicative of a business that's improving its efficiency. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

On a related note, the company's ratio of current liabilities to total assets has decreased to 2.2%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line On ADS Maritime Holding's ROCE

In a nutshell, we're pleased to see that ADS Maritime Holding has been able to generate higher returns from less capital. And with a respectable 40% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we found 6 warning signs for ADS Maritime Holding (2 are potentially serious) you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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This article by Simply Wall St is general in nature. 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.
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