Stock Analysis

Investors Met With Slowing Returns on Capital At Singapore Shipping (SGX:S19)

SGX:S19
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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. In light of that, when we looked at Singapore Shipping (SGX:S19) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for Singapore Shipping:

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

0.065 = US$11m ÷ (US$179m - US$12m) (Based on the trailing twelve months to March 2022).

So, Singapore Shipping has an ROCE of 6.5%. In absolute terms, that's a low return and it also under-performs the Shipping industry average of 11%.

Check out our latest analysis for Singapore Shipping

roce
SGX:S19 Return on Capital Employed October 26th 2022

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

What Does the ROCE Trend For Singapore Shipping Tell Us?

Things have been pretty stable at Singapore Shipping, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Singapore Shipping doesn't end up being a multi-bagger in a few years time.

Our Take On Singapore Shipping's ROCE

We can conclude that in regards to Singapore Shipping's returns on capital employed and the trends, there isn't much change to report on. And investors may be recognizing these trends since the stock has only returned a total of 7.3% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

On a final note, we've found 2 warning signs for Singapore Shipping that we think you should be aware of.

While Singapore Shipping isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Valuation is complex, but we're helping make it simple.

Find out whether Singapore Shipping is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.