Returns Are Gaining Momentum At Wilh. Wilhelmsen Holding (OB:WWI)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Wilh. Wilhelmsen Holding's (OB:WWI) returns on capital, so let's have a look.

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. The formula for this calculation on Wilh. Wilhelmsen Holding is:

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

0.028 = US$88m ÷ (US$3.7b - US$552m) (Based on the trailing twelve months to March 2023).

So, Wilh. Wilhelmsen Holding has an ROCE of 2.8%. In absolute terms, that's a low return and it also under-performs the Shipping industry average of 14%.

Check out our latest analysis for Wilh. Wilhelmsen Holding

In the above chart we have measured Wilh. Wilhelmsen Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Wilh. Wilhelmsen Holding.

What Can We Tell From Wilh. Wilhelmsen Holding's ROCE Trend?

While there are companies with higher returns on capital out there, we still find the trend at Wilh. Wilhelmsen Holding promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 284% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Key Takeaway

To bring it all together, Wilh. Wilhelmsen Holding has done well to increase the returns it's generating from its capital employed. Since the stock has returned a solid 85% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. 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.

If you'd like to know about the risks facing Wilh. Wilhelmsen Holding, we've discovered 1 warning sign that you should be aware of.

While Wilh. Wilhelmsen Holding 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.