There's Been No Shortage Of Growth Recently For Pangaea Logistics Solutions' (NASDAQ:PANL) Returns On Capital
What are the early trends we should look for to identify a stock that could 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Pangaea Logistics Solutions' (NASDAQ:PANL) returns on capital, so let's have a look.
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. The formula for this calculation on Pangaea Logistics Solutions is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = US$109m ÷ (US$748m - US$92m) (Based on the trailing twelve months to December 2022).
Therefore, Pangaea Logistics Solutions has an ROCE of 17%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Shipping industry average of 16%.
Check out our latest analysis for Pangaea Logistics Solutions
In the above chart we have measured Pangaea Logistics Solutions' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Pangaea Logistics Solutions here for free.
So How Is Pangaea Logistics Solutions' ROCE Trending?
Investors would be pleased with what's happening at Pangaea Logistics Solutions. Over the last five years, returns on capital employed have risen substantially to 17%. 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 86%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
What We Can Learn From Pangaea Logistics Solutions' ROCE
In summary, it's great to see that Pangaea Logistics Solutions 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. Since the stock has returned a staggering 134% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Pangaea Logistics Solutions does have some risks, we noticed 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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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