Returns On Capital Are Showing Encouraging Signs At Matson (NYSE:MATX)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Matson's (NYSE:MATX) returns on capital, so let's have a look.

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 Matson is:

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

0.093 = US$348m ÷ (US$4.3b - US$562m) (Based on the trailing twelve months to December 2023).

So, Matson has an ROCE of 9.3%. In absolute terms, that's a low return, but it's much better than the Shipping industry average of 7.7%.

View 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 for free.

So How Is Matson's ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 9.3%. Basically the business is earning more per dollar of capital invested and in addition to that, 81% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Matson's ROCE

All in all, it's terrific to see that Matson is reaping the rewards from prior investments and is growing its capital base. And a remarkable 210% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Matson can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 3 warning signs we've spotted with Matson (including 1 which is significant) .

While Matson may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.