ASL Marine Holdings (SGX:A04) Is Looking To Continue Growing Its 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? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at ASL Marine Holdings (SGX:A04) so let's look a bit deeper.

Understanding 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. The formula for this calculation on ASL Marine Holdings is:

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

0.0045 = S$1.4m ÷ (S$540m - S$239m) (Based on the trailing twelve months to March 2023).

Thus, ASL Marine Holdings has an ROCE of 0.5%. Ultimately, that's a low return and it under-performs the Machinery industry average of 6.3%.

Check out our latest analysis for ASL Marine 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 ASL Marine Holdings' past further, check out this free graph of past earnings, revenue and cash flow.

So How Is ASL Marine Holdings' ROCE Trending?

It's great to see that ASL Marine Holdings has started to generate some pre-tax earnings from prior investments. The company was generating losses five years ago, but now it's turned around, earning 0.5% which is no doubt a relief for some early shareholders. Additionally, the business is utilizing 57% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. This could potentially mean that the company is selling some of its assets.

Another thing to note, ASL Marine Holdings has a high ratio of current liabilities to total assets of 44%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On ASL Marine Holdings' ROCE

In summary, it's great to see that ASL Marine Holdings has been able to turn things around and earn higher returns on lower amounts of capital. Given the stock has declined 39% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we found 2 warning signs for ASL Marine Holdings (1 is significant) you should be aware of.

While ASL Marine 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.

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

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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