If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Mermaid Maritime( SGX:DU4 ) and its trend of ROCE, we really liked what we saw.
What Is 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. To calculate this metric for Mermaid Maritime, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.029 = ฿238m ÷ (฿15b - ฿6.3b) (Based on the trailing twelve months to September 2025) .
Thus, Mermaid Maritime has an ROCE of 2.9%.In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 7.3%.
View our latest analysis for Mermaid Maritime
Above you can see how the current ROCE for Mermaid Maritime compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Mermaid Maritime for free.
So How Is Mermaid Maritime's ROCE Trending?
Shareholders will be relieved that Mermaid Maritime has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 2.9%, which is always encouraging. While returns have increased, the amount of capital employed by Mermaid Maritime has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.
For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 43% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.
The Bottom Line On Mermaid Maritime's ROCE
As discussed above, Mermaid Maritime appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Mermaid Maritime can keep these trends up, it could have a bright future ahead.
One final note, you should learn about the 2 warning signs we've spotted with Mermaid Maritime (including 1 which shouldn't be ignored) .
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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.
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