Hutchison Port Holdings Trust (SGX:NS8U) Shareholders Will Want The ROCE Trajectory To Continue

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. With that in mind, we've noticed some promising trends at Hutchison Port Holdings Trust (SGX:NS8U) so let's look a bit deeper.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Hutchison Port Holdings Trust is:

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

0.055 = HK$4.3b ÷ (HK$89b - HK$11b) (Based on the trailing twelve months to December 2022).

So, Hutchison Port Holdings Trust has an ROCE of 5.5%. Even though it's in line with the industry average of 6.3%, it's still a low return by itself.

See our latest analysis for Hutchison Port Holdings Trust

Above you can see how the current ROCE for Hutchison Port Holdings Trust 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 Hutchison Port Holdings Trust.

SWOT Analysis for Hutchison Port Holdings Trust

What The Trend Of ROCE Can Tell Us

We're pretty happy with how the ROCE has been trending at Hutchison Port Holdings Trust. We found that the returns on capital employed over the last five years have risen by 53%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Speaking of capital employed, the company is actually utilizing 22% less than it was five years ago, which can be indicative of a business that's improving its efficiency. Hutchison Port Holdings Trust may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Bottom Line On Hutchison Port Holdings Trust's ROCE

In the end, Hutchison Port Holdings Trust has proven it's capital allocation skills are good with those higher returns from less amount of capital. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 0.6% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you'd like to know more about Hutchison Port Holdings Trust, we've spotted 3 warning signs, and 1 of them doesn't sit too well with us.

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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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.