Returns At Great Lakes Dredge & Dock (NASDAQ:GLDD) Are On The Way Up

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Great Lakes Dredge & Dock (NASDAQ:GLDD) so let's look a bit deeper.

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. The formula for this calculation on Great Lakes Dredge & Dock is:

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

0.098 = US$85m ÷ (US$1.0b - US$152m) (Based on the trailing twelve months to March 2022).

Thus, Great Lakes Dredge & Dock has an ROCE of 9.8%. On its own that's a low return, but compared to the average of 7.5% generated by the Construction industry, it's much better.

Check out our latest analysis for Great Lakes Dredge & Dock

In the above chart we have measured Great Lakes Dredge & Dock's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Great Lakes Dredge & Dock.

So How Is Great Lakes Dredge & Dock's ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 9.8%. The amount of capital employed has increased too, by 24%. So we're very much inspired by what we're seeing at Great Lakes Dredge & Dock thanks to its ability to profitably reinvest capital.

The Bottom Line On Great Lakes Dredge & Dock's ROCE

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 Lakes Dredge & Dock has. 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 Great Lakes Dredge & Dock can keep these trends up, it could have a bright future ahead.

Like most companies, Great Lakes Dredge & Dock does come with some risks, and we've found 1 warning sign that you should be aware of.

While Great Lakes Dredge & Dock isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.