Yahoo Finance A Close Look At Shreyas Shipping and Logistics Limited’s (NSE:SHREYAS) 6.9% ROCE
Today we'll evaluate Shreyas Shipping and Logistics Limited (NSE:SHREYAS) to determine whether it could have potential as an investment idea. Specifically, we'll consider its Return On Capital Employed (ROCE), since that will give us an insight into how efficiently the business can generate profits from the capital it requires.
First of all, we'll work out how to calculate ROCE. Second, we'll look at its ROCE compared to similar companies. Then we'll determine how its current liabilities are affecting its ROCE.
Understanding Return On Capital Employed (ROCE)
ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. All else being equal, a better business will have a higher ROCE. Overall, it is a valuable metric that has its flaws. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since 'No two businesses are exactly alike.
How Do You Calculate Return On Capital Employed?
Analysts use this formula to calculate return on capital employed:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
Or for Shreyas Shipping and Logistics:
0.069 = ₹446m ÷ (₹8.5b - ₹2.1b) (Based on the trailing twelve months to June 2019.)
So, Shreyas Shipping and Logistics has an ROCE of 6.9%.
Check out our latest analysis for Shreyas Shipping and Logistics
Is Shreyas Shipping and Logistics's ROCE Good?
ROCE can be useful when making comparisons, such as between similar companies. Using our data, we find that Shreyas Shipping and Logistics's ROCE is meaningfully better than the 4.5% average in the Shipping industry. We would consider this a positive, as it suggests it is using capital more effectively than other similar companies. Regardless of how Shreyas Shipping and Logistics stacks up against its industry, its ROCE in absolute terms is quite low (especially compared to a bank account). Readers may wish to look for more rewarding investments.
Shreyas Shipping and Logistics's current ROCE of 6.9% is lower than 3 years ago, when the company reported a 14% ROCE. So investors might consider if it has had issues recently. The image below shows how Shreyas Shipping and Logistics's ROCE compares to its industry, and you can click it to see more detail on its past growth.
It is important to remember that ROCE shows past performance, and is not necessarily predictive. ROCE can be misleading for companies in cyclical industries, with returns looking impressive during the boom times, but very weak during the busts. This is because ROCE only looks at one year, instead of considering returns across a whole cycle. How cyclical is Shreyas Shipping and Logistics? You can see for yourself by looking at this free graph of past earnings, revenue and cash flow.
What Are Current Liabilities, And How Do They Affect Shreyas Shipping and Logistics's ROCE?
Current liabilities include invoices, such as supplier payments, short-term debt, or a tax bill, that need to be paid within 12 months. Due to the way ROCE is calculated, a high level of current liabilities makes a company look as though it has less capital employed, and thus can (sometimes unfairly) boost the ROCE. To counter this, investors can check if a company has high current liabilities relative to total assets.
Shreyas Shipping and Logistics has total liabilities of ₹2.1b and total assets of ₹8.5b. As a result, its current liabilities are equal to approximately 24% of its total assets. With a very reasonable level of current liabilities, so the impact on ROCE is fairly minimal.
Our Take On Shreyas Shipping and Logistics's ROCE
Shreyas Shipping and Logistics has a poor ROCE, and there may be better investment prospects out there. Of course, you might also be able to find a better stock than Shreyas Shipping and Logistics. So you may wish to see this free collection of other companies that have grown earnings strongly.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
