Investors Will Want U-Ming Marine Transport's (TPE:2606) Growth In ROCE To Persist

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in U-Ming Marine Transport's (TPE:2606) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for U-Ming Marine Transport, this is the formula:

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

0.012 = NT$509m ÷ (NT$61b - NT$18b) (Based on the trailing twelve months to December 2020).

Therefore, U-Ming Marine Transport has an ROCE of 1.2%. Ultimately, that's a low return and it under-performs the Shipping industry average of 3.6%.

See our latest analysis for U-Ming Marine Transport

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating U-Ming Marine Transport's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 888% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From U-Ming Marine Transport's ROCE

In summary, we're delighted to see that U-Ming Marine Transport has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And a remarkable 235% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if U-Ming Marine Transport can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 4 warning signs we've spotted with U-Ming Marine Transport (including 1 which is a bit unpleasant) .

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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