Seamec (NSE: SEAMECLTD) seeks to continue increasing its returns on capital
If we are to find a title that could multiply in the long run, what are the underlying trends that we need to look for? Among other things, we’ll want to see two things; first, a growth return on capital employed (ROCE) and on the other hand, an expansion of the amount capital employed. If you see this, it usually means it’s a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Seamec (NSE: SEAMECLTD) looks pretty promising when it comes to its ROI trends.
Return on capital employed (ROCE): what is it?
Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. The formula for this calculation on Seamec is:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.031 = ₹ 208m ÷ (₹ 8.4b – ₹ 1.7b) (Based on the last twelve months up to December 2020).
Therefore, Seamec has a ROCE of 3.1%. At the end of the day, that’s a low yield and it’s below the 16% energy service industry average.
Discover our latest analysis for Seamec
Historical performance is a great place to start when looking for a stock, so above you can see the gauge of Seamec’s ROCE compared to its past returns. If you would like to see Seamec’s performance in the past in other metrics, you can check out this free graph of past income, income and cash flow.
What can we say about Seamec’s ROCE trend?
Seamec recently broke into profitability, so its past investments appear to be paying off. About five years ago the company was making losses, but things have changed as it now earns 3.1% on its equity. And unsurprisingly, like most companies trying to break into the dark, Seamec is using 23% more capital than it was five years ago. This may tell us that the company has plenty of reinvestment opportunities capable of generating higher returns.
Our opinion on Seamec’s ROCE
In short, we are delighted to see that Seamec’s reinvestment activities have paid off and that the business is now profitable. And a remarkable 449% total return over the past five years tells us that investors expect more good things to come in the future. Therefore, we think it would be worth your while to check if these trends will continue.
One more thing, we spotted 1 warning sign facing Seamec that you might find interesting.
Although Seamec does not earn the highest return, check out this free list of companies that generate high returns on equity with strong balance sheets.
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