Chinese Maritime Transport (TPE:2612) Will Be Hoping To Turn Its Returns On Capital Around

What financial metrics can indicate to us that a company is maturing or even in decline? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This indicates the company is producing less profit from its investments and its total assets are decreasing. In light of that, from a first glance at Chinese Maritime Transport (TPE:2612), we've spotted some signs that it could be struggling, so let's investigate.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Chinese Maritime Transport:

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

0.011 = NT$172m ÷ (NT$19b - NT$3.5b) (Based on the trailing twelve months to December 2020).

Therefore, Chinese Maritime Transport has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Shipping industry average of 3.6%.

See our latest analysis for Chinese Maritime Transport

Above you can see how the current ROCE for Chinese Maritime Transport compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Chinese Maritime Transport.

How Are Returns Trending?

We are a bit worried about the trend of returns on capital at Chinese Maritime Transport. Unfortunately the returns on capital have diminished from the 3.1% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Chinese Maritime Transport becoming one if things continue as they have.

Our Take On Chinese Maritime Transport's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Investors must expect better things on the horizon though because the stock has risen 37% in the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

One more thing: We've identified 3 warning signs with Chinese Maritime Transport (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

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

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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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