Returns On Capital Are A Standout For Samudera Shipping Line (SGX:S56)

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Speaking of which, we noticed some great changes in Samudera Shipping Line's (SGX:S56) returns on capital, so let's have a look.

Understanding 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. The formula for this calculation on Samudera Shipping Line is:

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

0.49 = US$329m ÷ (US$888m - US$217m) (Based on the trailing twelve months to December 2022).

Therefore, Samudera Shipping Line has an ROCE of 49%. That's a fantastic return and not only that, it outpaces the average of 6.5% earned by companies in a similar industry.

View our latest analysis for Samudera Shipping Line

Historical performance is a great place to start when researching a stock so above you can see the gauge for Samudera Shipping Line's ROCE against it's prior returns. If you'd like to look at how Samudera Shipping Line has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Samudera Shipping Line's ROCE Trending?

We like the trends that we're seeing from Samudera Shipping Line. Over the last five years, returns on capital employed have risen substantially to 49%. The amount of capital employed has increased too, by 186%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

All in all, it's terrific to see that Samudera Shipping Line is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Samudera Shipping Line does have some risks though, and we've spotted 1 warning sign for Samudera Shipping Line that you might be interested in.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.