Samudera Shipping Line (SGX:S56) Is Investing Its Capital With Increasing Efficiency

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. 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)

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. To calculate this metric for Samudera Shipping Line, this is the formula:

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

0.30 = US$211m ÷ (US$857m - US$156m) (Based on the trailing twelve months to June 2023).

So, Samudera Shipping Line has an ROCE of 30%. That's a fantastic return and not only that, it outpaces the average of 8.2% 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.

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Samudera Shipping Line are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 30%. The amount of capital employed has increased too, by 212%. So we're very much inspired by what we're seeing at Samudera Shipping Line thanks to its ability to profitably reinvest capital.

Our Take On Samudera Shipping Line's ROCE

In summary, it's great to see that Samudera Shipping Line can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 550% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we've found 1 warning sign for Samudera Shipping Line that we think you should be aware of.

Samudera Shipping Line is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.