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A Look Into South Port New Zealand's (NZSE:SPN) Impressive Returns On Capital

Simply Wall St
·3 mins read

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over South Port New Zealand's (NZSE:SPN) trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for South Port New Zealand:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.27 = NZ$14m ÷ (NZ$59m - NZ$7.7m) (Based on the trailing twelve months to June 2020).

Therefore, South Port New Zealand has an ROCE of 27%. That's a fantastic return and not only that, it outpaces the average of 8.1% earned by companies in a similar industry.

View our latest analysis for South Port New Zealand

roce
roce

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of South Port New Zealand, check out these free graphs here.

So How Is South Port New Zealand's ROCE Trending?

South Port New Zealand deserves to be commended in regards to it's returns. The company has employed 23% more capital in the last five years, and the returns on that capital have remained stable at 27%. Now considering ROCE is an attractive 27%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If South Port New Zealand can keep this up, we'd be very optimistic about its future.

Our Take On South Port New Zealand's ROCE

In short, we'd argue South Port New Zealand has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And the stock has followed suit returning a meaningful 90% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

While South Port New Zealand looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SPN is currently trading for a fair price.

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.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.