A Look Into South Port New Zealand's (NZSE:SPN) Impressive Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over South Port New Zealand's (NZSE:SPN) trend of ROCE, we really liked what we saw.

Understanding 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. To calculate this metric for South Port New Zealand, this is the formula:

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

0.27 = NZ$16m ÷ (NZ$65m - NZ$5.9m) (Based on the trailing twelve months to December 2020).

Therefore, South Port New Zealand has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Infrastructure industry average of 7.9%.

Check out our latest analysis for South Port New Zealand

Historical performance is a great place to start when researching a stock so above you can see the gauge for South Port New Zealand's ROCE against it's prior returns. If you're interested in investigating South Port New Zealand's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of South Port New Zealand's history of ROCE, it's quite impressive. The company has consistently earned 27% for the last five years, and the capital employed within the business has risen 29% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

In Conclusion...

South Port New Zealand has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And the stock has done incredibly well with a 118% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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This article by Simply Wall St is general in nature. 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.
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