We Like These Underlying Return On Capital Trends At Havila Shipping (OB:HAVI)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Havila Shipping (OB:HAVI) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Havila Shipping:

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

0.077 = kr100m ÷ (kr1.5b - kr168m) (Based on the trailing twelve months to June 2023).

Therefore, Havila Shipping has an ROCE of 7.7%. In absolute terms, that's a low return but it's around the Energy Services industry average of 9.5%.

See 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're interested in investigating Havila Shipping's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Havila Shipping's ROCE Trending?

We're delighted to see that Havila Shipping is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but now it's turned around, earning 7.7% which is no doubt a relief for some early shareholders. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 70%. Havila Shipping could be selling under-performing assets since the ROCE is improving.

What We Can Learn From Havila Shipping's ROCE

In summary, it's great to see that Havila Shipping has been able to turn things around and earn higher returns on lower amounts of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Havila Shipping does have some risks though, and we've spotted 1 warning sign for Havila Shipping that you might be interested in.

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.

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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.