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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Marsden Maritime Holdings' (NZSE:MMH) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What Is It?
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. The formula for this calculation on Marsden Maritime Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0092 = NZ$1.8m ÷ (NZ$194m - NZ$1.6m) (Based on the trailing twelve months to June 2024).
Thus, Marsden Maritime Holdings has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 6.0%.
Check out our latest analysis for Marsden Maritime Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for Marsden Maritime Holdings' ROCE against it's prior returns. If you'd like to look at how Marsden Maritime Holdings has performed in the past in other metrics, you can view this free graph of Marsden Maritime Holdings' past earnings, revenue and cash flow.
So How Is Marsden Maritime Holdings' ROCE Trending?
While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 0.9%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 27%. So we're very much inspired by what we're seeing at Marsden Maritime Holdings thanks to its ability to profitably reinvest capital.
The Bottom Line
In summary, it's great to see that Marsden Maritime Holdings can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Given the stock has declined 42% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.