Is There More Growth In Store For First Ship Lease Trust's (SGX:D8DU) Returns On Capital?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 on that note, First Ship Lease Trust (SGX:D8DU) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for First Ship Lease Trust:

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

0.13 = US$23m ÷ (US$192m - US$19m) (Based on the trailing twelve months to September 2020).

Thus, First Ship Lease Trust has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 4.3% generated by the Shipping industry.

See our latest analysis for First Ship Lease Trust

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

The Trend Of ROCE

We're pretty happy with how the ROCE has been trending at First Ship Lease Trust. The data shows that returns on capital have increased by 158% over the trailing five years. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, First Ship Lease Trust appears to been achieving more with less, since the business is using 67% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

In Conclusion...

From what we've seen above, First Ship Lease Trust has managed to increase it's returns on capital all the while reducing it's capital base. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 19% to shareholders. So with that in mind, we think the stock deserves further research.

First Ship Lease Trust does have some risks though, and we've spotted 2 warning signs for First Ship Lease Trust that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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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