There's Been No Shortage Of Growth Recently For Navios Maritime Holdings' (NYSE:NM) Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 Navios Maritime Holdings (NYSE:NM) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Navios Maritime Holdings, this is the formula:

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

0.063 = US$52m ÷ (US$948m - US$112m) (Based on the trailing twelve months to June 2023).

So, Navios Maritime Holdings has an ROCE of 6.3%. Ultimately, that's a low return and it under-performs the Shipping industry average of 11%.

See our latest analysis for Navios Maritime Holdings

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Navios Maritime Holdings has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

You'd find it hard not to be impressed with the ROCE trend at Navios Maritime Holdings. The data shows that returns on capital have increased by 350% over the trailing five years. The company is now earning US$0.06 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 64% less than it was five years ago, which can be indicative of a business that's improving its efficiency. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Bottom Line On Navios Maritime Holdings' ROCE

In the end, Navios Maritime Holdings has proven it's capital allocation skills are good with those higher returns from less amount of capital. Although the company may be facing some issues elsewhere since the stock has plunged 76% in the last five years. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

On a separate note, we've found 1 warning sign for Navios Maritime Holdings you'll probably want to know about.

While Navios Maritime Holdings 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.