This analysis is intended to introduce important early concepts to people who are starting to invest and want to begin learning the link between Sino-Global Shipping America Ltd (NASDAQ:SINO)’s return fundamentals and stock market performance.
If you purchase a SINO share you are effectively becoming a partner with many other shareholders. This share represents a portion of capital used by the company to operate the business, and it is important the company is able to use the capital base efficiently to create adequate cash flows for you as an investor. You need to pay attention to this because your return on investment is linked to dividends and internal investments to improve the business, which can only occur if the company is expected to produce adequate earnings with the capital that has been provided. Therefore, looking at how efficiently Sino-Global Shipping America is able to use capital to create earnings will help us understand your potential return. Investors use many different metrics but the analysis below focuses on return on capital employed (ROCE). Let’s take a look at what it can tell us.
Calculating Return On Capital Employed for SINO
Choosing to invest in Sino-Global Shipping America comes at the cost of investing in another potentially favourable company. The cost of missing out on another opportunity comes in the form of the potential long term gain you could’ve received, which is dependent on the gap between the return on capital you could’ve achieved and that of the company you invested in. Hence, capital returns are very important, and should be examined before you invest in conjunction with a certain benchmark that represents the minimum return you require to be compensated for the risk of missing out on other potentially lucrative investments. A good metric to use is return on capital employed (ROCE), which helps us gauge how much income can be created from the funds needed to operate the business. This metric will tell us if Sino-Global Shipping America is good at growing investor capital. I have calculated Sino-Global Shipping America’s ROCE for you below:
ROCE Calculation for SINO
Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)
Capital Employed = (Total Assets – Current Liabilities)
∴ ROCE = US$2.03m ÷ (US$23.68m – US$3.67m) = 10.15%
As you can see, SINO earned $10.1 from every $100 you invested over the previous twelve months. This shows Sino-Global Shipping America provides an uninspiring capital return that is slightly below the 15% ROCE that is typically considered to be a strong benchmark. Nevertheless, if SINO is clever with their reinvestments or dividend payments, investors can still grow their capital but may not see the same compounded performance as other high-returning companies.
A deeper look
The underperforming ROCE is not ideal for Sino-Global Shipping America investors if the company is unable to turn things around. But if the underlying variables (earnings and capital employed) improve, SINO’s ROCE may increase, in which case your portfolio could benefit from holding the company. So it is important for investors to understand what is going on under the hood and look at how these variables have been behaving. Looking at the past 3 year period shows us that SINO weakened investor return on capital employed from 11.71%. Conversely, the movement in the earnings variable shows a jump from US$809.72k to US$2.03m albeit capital employed has grown by a relatively larger volume as a result of a hike in the level of total assets , which suggests investor’s ROCE has fallen because the company requires more capital to create earnings despite the previous growth in EBT.
SINO’s investors have experienced a downward trend in ROCE and it is currently at a level that makes us question whether the company is capable of providing a suitable return on investment. Before making any decisions, ROCE does not tell the whole picture so you need to pay attention to other fundamentals like future prospects and management ability. Sino-Global Shipping America’s fundamentals can be explored with the links I’ve provided below if you are interested, otherwise you can start looking at other high-performing stocks.
- Future Outlook: What are well-informed industry analysts predicting for SINO’s future growth? Take a look at our free research report of analyst consensus for SINO’s outlook.
- Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for Sino-Global Shipping America’s future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.