Has Eimskipafélag Íslands hf (ICE: EIM) received what it takes to become a multi-baker?
If we want to find stocks that can multiply in the long run, what are the underlying developments that we should look for? First, we want to see proven return on ROCE which is increasing and secondly increasing primer of working capital. If you see this, it usually means that it is a company with a great business model and plenty of profitable reinvestment opportunities. Given that when we watched Eimskipafélag Íslands hf (ICE: EIM) and its ROCE strategy, we were not directly impressed.
Understanding the return on employment (ROCE)
Just to clarify if you are not sure, ROCE is a measure of how much pre-tax revenue (in percentages) the company earns from the capital invested in its business. To calculate this measure for Eimskipafélag Íslands hf, this is the formula:
Return on working capital = profit before interest and taxes (EBIT) ÷ (total assets – current liabilities)
0.03 = € 13m ÷ (€ 541m – € 103m) (Compared to the last twelve months to June 2020).
Then, Eimskipafélag Íslands hf. Has a 3.0% share. Finally, there is a low return and it returns an average of 6.0% to the shipping industry.
Check out our latest analysis for Eimskipafélag Íslands hf
Historical performance is a great place to start when researching equities, so above you can see a measure for ROCE Eimskipafélag Íslands hf against previous returns. If you want to see how Eimskipafélag Íslands hf has performed before in other criteria, you can look at this free graph of previous income, income and cash flow.
What the evolution of ROCE can tell us
On the surface, the development of ROCE at Eimskipafélag Íslands hf. To be more precise, ROCE has fallen from 6.7% in the last five years. On the other hand, the company has been using more capital without a corresponding sales recovery last year, which could indicate that these investments are in the long run. It is worth keeping an eye on the company’s revenue from now on to see if these investments will contribute to the final result.
Our Take On at Eimskipafélag Íslands hf
Finally, we have found that Eimskipafélag Íslands hf is reinvesting in its operations, but returns have been declining. And investors seem hesitant that the trend will pick up as equities have fallen by 37% over the past five years. Therefore, we do not believe that Eimskipafélag Íslands hf.
Like most companies, Eimskipafélag Íslands hf carries a certain risk and we have found it 2 warning signs which you should be aware of.
If you want to find a reliable, high-income company, check it out free a list of companies with good balance sheets and glorious return on equity.
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