Wilh. Wilhelmsen Holding's (OB:WWI) Returns On Capital Are Heading Higher

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. With that in mind, we've noticed some promising trends at Wilh. Wilhelmsen Holding (OB:WWI) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Wilh. Wilhelmsen Holding:

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

0.023 = US$72m ÷ (US$3.7b - US$530m) (Based on the trailing twelve months to March 2022).

Thus, Wilh. Wilhelmsen Holding has an ROCE of 2.3%. Ultimately, that's a low return and it under-performs the Shipping industry average of 7.6%.

View 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, you can check out the forecasts from the analysts covering Wilh. Wilhelmsen Holding here for free.

How Are Returns Trending?

While the ROCE is still rather low for Wilh. Wilhelmsen Holding, we're glad to see it heading in the right direction. We found that the returns on capital employed over the last five years have risen by 314%. The company is now earning US$0.02 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 24% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

In Conclusion...

In summary, it's great to see that Wilh. Wilhelmsen Holding has been able to turn things around and earn higher returns on lower amounts of capital. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 15% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

While Wilh. Wilhelmsen Holding looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether WWI is currently trading for a fair price.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.