There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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 Shin Yang Shipping Corporation Berhad's (KLSE:SYSCORP) returns on capital, so let's have a look.
What Is Return On Capital Employed (ROCE)?
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. The formula for this calculation on Shin Yang Shipping Corporation Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = RM234m ÷ (RM1.6b - RM290m) (Based on the trailing twelve months to March 2023).
So, Shin Yang Shipping Corporation Berhad has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Shipping industry average of 9.9% it's much better.
View our latest analysis for Shin Yang Shipping Corporation Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Shin Yang Shipping Corporation Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Shin Yang Shipping Corporation Berhad, check out these free graphs here.
So How Is Shin Yang Shipping Corporation Berhad's ROCE Trending?
Shin Yang Shipping Corporation Berhad is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 496% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
What We Can Learn From Shin Yang Shipping Corporation Berhad's ROCE
To bring it all together, Shin Yang Shipping Corporation Berhad has done well to increase the returns it's generating from its capital employed. And with a respectable 91% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.