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When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. On that note, looking into COSCO SHIPPING International (Singapore) (SGX:F83), we weren't too upbeat about how things were going.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for COSCO SHIPPING International (Singapore):
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.014 = S$11m ÷ (S$856m - S$68m) (Based on the trailing twelve months to December 2023).
Thus, COSCO SHIPPING International (Singapore) has an ROCE of 1.4%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 2.2%.
Check out our latest analysis for COSCO SHIPPING International (Singapore)
Historical performance is a great place to start when researching a stock so above you can see the gauge for COSCO SHIPPING International (Singapore)'s ROCE against it's prior returns. If you'd like to look at how COSCO SHIPPING International (Singapore) has performed in the past in other metrics, you can view this free graph of COSCO SHIPPING International (Singapore)'s past earnings, revenue and cash flow.
The Trend Of ROCE
In terms of COSCO SHIPPING International (Singapore)'s historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 2.5% that they were earning five years ago. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect COSCO SHIPPING International (Singapore) to turn into a multi-bagger.
In Conclusion...
All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Investors haven't taken kindly to these developments, since the stock has declined 54% from where it was five years ago. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.