Returns On Capital Are Showing Encouraging Signs At Navios Maritime Holdings (NYSE:NM)
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, we've noticed some promising trends at Navios Maritime Holdings (NYSE:NM) so let's look a bit deeper.
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. Analysts use this formula to calculate it for Navios Maritime Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.064 = US$53m ÷ (US$916m - US$90m) (Based on the trailing twelve months to March 2023).
Therefore, Navios Maritime Holdings has an ROCE of 6.4%. In absolute terms, that's a low return and it also under-performs the Shipping industry average of 15%.
Check out our latest analysis for Navios Maritime Holdings
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're interested in investigating Navios Maritime Holdings' past further, check out this free graph of past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
You'd find it hard not to be impressed with the ROCE trend at Navios Maritime Holdings. The figures show that over the last five years, returns on capital have grown by 1,077%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Navios Maritime Holdings appears to been achieving more with less, since the business is using 65% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.
In Conclusion...
In a nutshell, we're pleased to see that Navios Maritime Holdings has been able to generate higher returns from less capital. Although the company may be facing some issues elsewhere since the stock has plunged 79% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.
On a final note, we've found 1 warning sign for Navios Maritime Holdings that we think you should be aware of.
While Navios Maritime Holdings isn't earning the highest return, check out this free list of companies that are 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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