Wisdom Marine Lines Limited (Cayman) (TWSE:2637) Is Doing The Right Things To Multiply Its Share Price

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, we've noticed some promising trends at Wisdom Marine Lines Limited (Cayman) (TWSE:2637) so let's look a bit deeper.

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. The formula for this calculation on Wisdom Marine Lines Limited (Cayman) is:

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

0.067 = US$172m ÷ (US$2.9b - US$327m) (Based on the trailing twelve months to June 2024).

Therefore, Wisdom Marine Lines Limited (Cayman) has an ROCE of 6.7%. In absolute terms, that's a low return, but it's much better than the Shipping industry average of 5.1%.

View our latest analysis for Wisdom Marine Lines Limited (Cayman)

In the above chart we have measured Wisdom Marine Lines Limited (Cayman)'s prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Wisdom Marine Lines Limited (Cayman) for free.

What The Trend Of ROCE Can Tell Us

Wisdom Marine Lines Limited (Cayman) is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 32% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line

In summary, we're delighted to see that Wisdom Marine Lines Limited (Cayman) has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 226% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Wisdom Marine Lines Limited (Cayman) can keep these trends up, it could have a bright future ahead.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Wisdom Marine Lines Limited (Cayman) (of which 1 is concerning!) that you should know about.

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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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.