Under the hood, returns from Grindrod Shipping Holdings (NASDAQ:GRIN) look impressive

Did you know that there are financial metrics that can provide clues to a potential multi-bagger? First, we’ll want to see proof come back on capital employed (ROCE) which is increasing, and on the other hand, a base capital employed. If you see this, it usually means it’s a company with a great business model and lots of profitable reinvestment opportunities. With this in mind, the ROCE of Grindrod Shipping Holdings (NASDAQ:GRIN) looks great, so let’s see what the trend can tell us.

What is return on capital employed (ROCE)?

For those who don’t know what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital used in its business. The formula for this calculation on Grindrod Shipping Holdings is:

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

0.30 = $167 million ÷ ($657 million – $98 million) (Based on the last twelve months to March 2022).

So, Grindrod Shipping Holdings has a ROCE of 30%. This is a fantastic return and not only that, it exceeds the 18% average earned by companies in a similar industry.

NasdaqGS:GRIN Return on Capital Employed July 25, 2022

Above, you can see how Grindrod Shipping Holdings’ current ROCE compares to its past returns on capital, but you can’t say anything about the past. If you’re interested, you can check out analyst forecasts in our free analyst forecast report for the company.

What can we say about the ROCE trend of Grindrod Shipping Holdings?

We are delighted to see that Grindrod Shipping Holdings is reaping the rewards of its investments and is now generating pre-tax profits. About five years ago, the company was generating losses, but things have reversed as it now earns 30% on its capital. Not only that, but the company is using 32% more capital than before, but that’s to be expected of a company trying to become profitable. This may indicate that there are many opportunities to invest capital internally and at ever higher rates, two common characteristics of a multi-bagger.

One last thing to note, Grindrod Shipping Holdings has reduced current liabilities to 15% of total assets during this period, which effectively reduces the amount of financing from suppliers or short-term creditors. Therefore, we can be confident that the growth in ROCE is the result of fundamental company improvements, rather than a cooking class showcasing this company’s books.

In conclusion…

In summary, it’s great to see that Grindrod Shipping Holdings has managed to become profitable and continues to reinvest in its business. Given that the stock has returned a staggering 196% to shareholders over the past three years, it seems investors recognize these changes. Therefore, we think it would be worth checking whether these trends will continue.

One more thing to note, we have identified 1 warning sign with Grindrod Shipping Holdings and understanding this should be part of your investment process.

High yields are a key ingredient to strong performance, so check out our free list ofstocks generating high returns on equity with strong balance sheets.

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