Did you know there are some financial metrics that can provide clues of a potential 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. Speaking of which, we noticed some great changes in COSCO SHIPPING Energy Transportation's (HKG:1138) returns on capital, so let's have a look.

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. To calculate this metric for COSCO SHIPPING Energy Transportation, this is the formula:

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

0.086 = CN¥5.5b ÷ (CN¥73b - CN¥8.6b) (Based on the trailing twelve months to March 2024).

Therefore, COSCO SHIPPING Energy Transportation has an ROCE of 8.6%. On its own that's a low return, but compared to the average of 7.1% generated by the Oil and Gas industry, it's much better.

Above you can see how the current ROCE for COSCO SHIPPING Energy Transportation 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 COSCO SHIPPING Energy Transportation for free.

The Trend Of ROCE

COSCO SHIPPING Energy Transportation has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 159% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

Our Take On COSCO SHIPPING Energy Transportation's ROCE

As discussed above, COSCO SHIPPING Energy Transportation appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And a remarkable 160% 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 COSCO SHIPPING Energy Transportation can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 2 warning signs for COSCO SHIPPING Energy Transportation you'll probably want to know about.

While COSCO SHIPPING Energy Transportation isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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