We're Watching These Trends At Port of Tauranga (NZSE:POT)

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Port of Tauranga (NZSE:POT), it didn't seem to tick all of these boxes.

What is 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. To calculate this metric for Port of Tauranga, this is the formula:

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

0.087 = NZ$132m ÷ (NZ$1.8b - NZ$301m) (Based on the trailing twelve months to June 2020).

So, Port of Tauranga has an ROCE of 8.7%. On its own, that's a low figure but it's around the 8.1% average generated by the Infrastructure industry.

See our latest analysis for Port of Tauranga

Above you can see how the current ROCE for Port of Tauranga compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Port of Tauranga.

So How Is Port of Tauranga's ROCE Trending?

The returns on capital haven't changed much for Port of Tauranga in recent years. The company has consistently earned 8.7% for the last five years, and the capital employed within the business has risen 40% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Port of Tauranga's ROCE

Long story short, while Port of Tauranga has been reinvesting its capital, the returns that it's generating haven't increased. Yet to long term shareholders the stock has gifted them an incredible 138% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to continue researching Port of Tauranga, you might be interested to know about the 2 warning signs that our analysis has discovered.

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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