Yahoo Finance Here's What's Concerning About Napier Port Holdings' (NZSE:NPH) Returns On Capital
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Napier Port Holdings (NZSE:NPH) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
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. To calculate this metric for Napier Port Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.038 = NZ$21m ÷ (NZ$565m - NZ$17m) (Based on the trailing twelve months to September 2023).
So, Napier Port Holdings has an ROCE of 3.8%. Even though it's in line with the industry average of 3.8%, it's still a low return by itself.
Check out our latest analysis for Napier Port Holdings
Above you can see how the current ROCE for Napier Port Holdings 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 analyst report for Napier Port Holdings .
What Can We Tell From Napier Port Holdings' ROCE Trend?
In terms of Napier Port Holdings' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 3.8% from 8.8% five years ago. However it looks like Napier Port Holdings might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
What We Can Learn From Napier Port Holdings' ROCE
To conclude, we've found that Napier Port Holdings is reinvesting in the business, but returns have been falling. Since the stock has declined 27% over the last three years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
One more thing to note, we've identified 1 warning sign with Napier Port Holdings and understanding this should be part of your investment process.
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.
