Havila Shipping (OB:HAVI) Is Experiencing Growth In Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Havila Shipping's (OB:HAVI) returns on capital, so let's have a look.

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. The formula for this calculation on Havila Shipping is:

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

0.08 = kr136m ÷ (kr1.9b - kr192m) (Based on the trailing twelve months to June 2022).

Thus, Havila Shipping has an ROCE of 8.0%. In absolute terms, that's a low return, but it's much better than the Energy Services industry average of 5.2%.

Check out our latest analysis for Havila Shipping

Historical performance is a great place to start when researching a stock so above you can see the gauge for Havila Shipping's ROCE against it's prior returns. If you'd like to look at how Havila Shipping has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Like most people, we're pleased that Havila Shipping is now generating some pretax earnings. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 8.0% on their capital employed. In regards to capital employed, Havila Shipping is using 65% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. This could potentially mean that the company is selling some of its assets.

The Bottom Line On Havila Shipping's ROCE

In the end, Havila Shipping has proven it's capital allocation skills are good with those higher returns from less amount of capital. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. So researching this company further and determining whether or not these trends will continue seems justified.

Havila Shipping does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those don't sit too well with us...

While Havila Shipping may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.