These Return Metrics Don't Make COSCO SHIPPING International (Singapore) (SGX:F83) Look Too Strong

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. So after we looked into COSCO SHIPPING International (Singapore) (SGX:F83), the trends above didn't look too great.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on COSCO SHIPPING International (Singapore) is:

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

0.014 = S$11m ÷ (S$856m - S$68m) (Based on the trailing twelve months to December 2023).

Thus, COSCO SHIPPING International (Singapore) has an ROCE of 1.4%. On its own that's a low return on capital but it's in line with the industry's average returns of 1.4%.

View our latest analysis for COSCO SHIPPING International (Singapore)

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how COSCO SHIPPING International (Singapore) has performed in the past in other metrics, you can view this free graph of COSCO SHIPPING International (Singapore)'s past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of COSCO SHIPPING International (Singapore)'s historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 2.5%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect COSCO SHIPPING International (Singapore) to turn into a multi-bagger.

In Conclusion...

In summary, it's unfortunate that COSCO SHIPPING International (Singapore) is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 63% over the last five years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

On a separate note, we've found 1 warning sign for COSCO SHIPPING International (Singapore) you'll probably want to know about.

While COSCO SHIPPING International (Singapore) may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.