Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Hutchison Port Holdings Trust's (SGX:NS8U) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Hutchison Port Holdings Trust is:

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

0.045 = HK$3.4b ÷ (HK$84b - HK$7.3b) (Based on the trailing twelve months to June 2023).

So, Hutchison Port Holdings Trust has an ROCE of 4.5%. In absolute terms, that's a low return and it also under-performs the Infrastructure industry average of 6.6%.

View our latest analysis for Hutchison Port Holdings Trust

Above you can see how the current ROCE for Hutchison Port Holdings Trust 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 Hutchison Port Holdings Trust's ROCE Trending?

While the ROCE is still rather low for Hutchison Port Holdings Trust, we're glad to see it heading in the right direction. The figures show that over the last five years, returns on capital have grown by 23%. The company is now earning HK$0.04 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 22% less than it was five years ago, which can be indicative of a business that's improving its efficiency. Hutchison Port Holdings Trust may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

What We Can Learn From Hutchison Port Holdings Trust's ROCE

In a nutshell, we're pleased to see that Hutchison Port Holdings Trust has been able to generate higher returns from less capital. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. So researching this company further and determining whether or not these trends will continue seems justified.