Matson (NYSE:MATX) Is Investing Its Capital With Increasing Efficiency

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of Matson (NYSE:MATX) we really liked what we saw.

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. Analysts use this formula to calculate it for Matson:

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

0.43 = US$1.6b ÷ (US$4.5b - US$600m) (Based on the trailing twelve months to September 2022).

Therefore, Matson has an ROCE of 43%. In absolute terms that's a great return and it's even better than the Shipping industry average of 17%.

See our latest analysis for Matson

Above you can see how the current ROCE for Matson compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Matson here for free.

So How Is Matson's ROCE Trending?

Investors would be pleased with what's happening at Matson. The data shows that returns on capital have increased substantially over the last five years to 43%. Basically the business is earning more per dollar of capital invested and in addition to that, 105% more capital is being employed now too. So we're very much inspired by what we're seeing at Matson thanks to its ability to profitably reinvest capital.

What We Can Learn From Matson's ROCE

To sum it up, Matson has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 131% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Matson does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

Matson is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.