The Trend Of High Returns At Frontier Transport Holdings (JSE:FTH) Has Us Very Interested

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Frontier Transport Holdings' (JSE:FTH) 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. Analysts use this formula to calculate it for Frontier Transport Holdings:

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

0.25 = R470m ÷ (R2.3b - R440m) (Based on the trailing twelve months to March 2024).

Thus, Frontier Transport Holdings has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Transportation industry average of 6.1%.

View our latest analysis for Frontier Transport 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 Frontier Transport Holdings has performed in the past in other metrics, you can view this free graph of Frontier Transport Holdings' past earnings, revenue and cash flow.

How Are Returns Trending?

Frontier Transport Holdings is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 35% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

To sum it up, Frontier Transport Holdings is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 244% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One final note, you should learn about the 2 warning signs we've spotted with Frontier Transport Holdings (including 1 which makes us a bit uncomfortable) .

Frontier Transport Holdings 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com