Has Alexander Marine (TPE:8478) Got What It Takes To Become A Multi-Bagger?

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. 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. Having said that, from a first glance at Alexander Marine (TPE:8478) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper 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. Analysts use this formula to calculate it for Alexander Marine:

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

0.063 = NT$251m ÷ (NT$7.2b - NT$3.2b) (Based on the trailing twelve months to September 2020).

Therefore, Alexander Marine has an ROCE of 6.3%. In absolute terms, that's a low return and it also under-performs the Leisure industry average of 12%.

See our latest analysis for Alexander Marine

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

How Are Returns Trending?

There are better returns on capital out there than what we're seeing at Alexander Marine. Over the past five years, ROCE has remained relatively flat at around 6.3% and the business has deployed 119% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Another thing to note, Alexander Marine has a high ratio of current liabilities to total assets of 44%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Alexander Marine's ROCE

Long story short, while Alexander Marine has been reinvesting its capital, the returns that it's generating haven't increased. And investors appear hesitant that the trends will pick up because the stock has fallen 66% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Alexander Marine (of which 2 can't be ignored!) that you should know about.

While Alexander Marine 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. 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.
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