Why We Like The Returns At Far-Eastern Shipping (MCX:FESH)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. So when we looked at the ROCE trend of Far-Eastern Shipping (MCX:FESH) we really liked what we saw.

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. The formula for this calculation on Far-Eastern Shipping is:

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

0.41 = ₽20b ÷ (₽69b - ₽21b) (Based on the trailing twelve months to June 2021).

So, Far-Eastern Shipping has an ROCE of 41%. That's a fantastic return and not only that, it outpaces the average of 8.5% earned by companies in a similar industry.

Check out our latest analysis for Far-Eastern Shipping

Historical performance is a great place to start when researching a stock so above you can see the gauge for Far-Eastern Shipping's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Far-Eastern Shipping, check out these free graphs here.

What Can We Tell From Far-Eastern Shipping's ROCE Trend?

Far-Eastern Shipping is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 138% over the last three years. 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

To sum it up, Far-Eastern Shipping is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 687% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 1 warning sign facing Far-Eastern Shipping that you might find interesting.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.