Returns Are Gaining Momentum At Great Eastern Shipping (NSE:GESHIP)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Great Eastern Shipping (NSE:GESHIP) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Great Eastern Shipping:

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

0.16 = ₹24b ÷ (₹168b - ₹15b) (Based on the trailing twelve months to June 2024).

So, Great Eastern Shipping has an ROCE of 16%. That's a relatively normal return on capital, and it's around the 14% generated by the Oil and Gas industry.

See our latest analysis for Great Eastern Shipping

In the above chart we have measured Great Eastern Shipping's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Great Eastern Shipping for free.

How Are Returns Trending?

The trends we've noticed at Great Eastern Shipping are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 25% more capital is being employed now too. So we're very much inspired by what we're seeing at Great Eastern Shipping thanks to its ability to profitably reinvest capital.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Great Eastern Shipping has. Since the stock has returned a staggering 427% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Great Eastern Shipping can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Great Eastern Shipping, we've spotted 3 warning signs, and 1 of them doesn't sit too well with us.

While Great Eastern Shipping may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.