SEACOR Marine Holdings (NYSE:SMHI) Is Looking To Continue Growing Its Returns On Capital

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. With that in mind, we've noticed some promising trends at SEACOR Marine Holdings (NYSE:SMHI) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

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 SEACOR Marine Holdings, this is the formula:

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

0.02 = US$14m ÷ (US$780m - US$77m) (Based on the trailing twelve months to December 2023).

Thus, SEACOR Marine Holdings has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Energy Services industry average of 13%.

See our latest analysis for SEACOR Marine Holdings

In the above chart we have measured SEACOR Marine Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for SEACOR Marine Holdings .

What Can We Tell From SEACOR Marine Holdings' ROCE Trend?

Like most people, we're pleased that SEACOR Marine Holdings is now generating some pretax earnings. The company was generating losses five years ago, but now it's turned around, earning 2.0% which is no doubt a relief for some early shareholders. Additionally, the business is utilizing 31% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

What We Can Learn From SEACOR Marine Holdings' ROCE

From what we've seen above, SEACOR Marine Holdings has managed to increase it's returns on capital all the while reducing it's capital base. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 0.2% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

SEACOR Marine Holdings does have some risks though, and we've spotted 1 warning sign for SEACOR Marine Holdings that you might be interested in.

While SEACOR Marine Holdings 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. 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.