What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it’s a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Matson (NYSE:MATX) looks great, so lets see what the trend can tell us.
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. The formula for this calculation on Matson is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.21 = US$517m ÷ (US$3.0b – US$532m) (Based on the trailing twelve months to June 2021).
Therefore, Matson has an ROCE of 21%. In absolute terms that’s a great return and it’s even better than the Shipping industry average of 8.2%.
Above you can see how the current ROCE for Matson 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 report on analyst forecasts for the company.
So How Is Matson’s ROCE Trending?
Investors would be pleased with what’s happening at Matson. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 21%. 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 79%. So we’re very much inspired by what we’re seeing at Matson thanks to its ability to profitably reinvest capital.
What We Can Learn From Matson’s ROCE
All in all, it’s terrific to see that Matson is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 150% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it’s worth looking further into this stock because if Matson can keep these trends up, it could have a bright future ahead.
Matson does come with some risks though, we found 5 warning signs in our investment analysis, and 1 of those can’t be ignored…
High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.
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