We Like These Underlying Return On Capital Trends At Hutchison Port Holdings Trust (SGX:NS8U)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Hutchison Port Holdings Trust (SGX:NS8U) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Hutchison Port Holdings Trust, this is the formula:

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

0.07 = HK$5.2b ÷ (HK$92b - HK$17b) (Based on the trailing twelve months to June 2022).

Therefore, Hutchison Port Holdings Trust has an ROCE of 7.0%. In absolute terms, that's a low return but it's around the Infrastructure industry average of 6.2%.

View 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

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 108%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Interestingly, the business may be becoming more efficient because it's applying 25% less capital than it was five years ago. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Bottom Line On Hutchison Port Holdings Trust's ROCE

In summary, it's great to see that Hutchison Port Holdings Trust has been able to turn things around and earn higher returns on lower amounts of capital. And since the stock has fallen 11% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know more about Hutchison Port Holdings Trust, we've spotted 2 warning signs, and 1 of them shouldn't be ignored.

While Hutchison Port Holdings Trust 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.