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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Westshore Terminals Investment (TSE:WTE), it didn't seem to tick all of these boxes.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Westshore Terminals Investment is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = CA$157m ÷ (CA$1.8b - CA$196m) (Based on the trailing twelve months to September 2024).
Thus, Westshore Terminals Investment has an ROCE of 10.0%. In absolute terms, that's a low return, but it's much better than the Infrastructure industry average of 7.4%.
See our latest analysis for Westshore Terminals Investment
Above you can see how the current ROCE for Westshore Terminals Investment compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Westshore Terminals Investment .
How Are Returns Trending?
When we looked at the ROCE trend at Westshore Terminals Investment, we didn't gain much confidence. To be more specific, ROCE has fallen from 17% over the last five years. However it looks like Westshore Terminals Investment might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
Our Take On Westshore Terminals Investment's ROCE
In summary, Westshore Terminals Investment is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Yet to long term shareholders the stock has gifted them an incredible 169% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
If you're still interested in Westshore Terminals Investment it's worth checking out our FREE intrinsic value approximation for WTE to see if it's trading at an attractive price in other respects.