Genco Shipping & Trading (NYSE:GNK) Is Experiencing Growth In Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Speaking of which, we noticed some great changes in Genco Shipping & Trading's (NYSE:GNK) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Genco Shipping & Trading:

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

0.059 = US$60m ÷ (US$1.1b - US$38m) (Based on the trailing twelve months to June 2024).

So, Genco Shipping & Trading has an ROCE of 5.9%. In absolute terms, that's a low return and it also under-performs the Shipping industry average of 9.2%.

See our latest analysis for Genco Shipping & Trading

In the above chart we have measured Genco Shipping & Trading's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Genco Shipping & Trading .

What Can We Tell From Genco Shipping & Trading's ROCE Trend?

Genco Shipping & Trading has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 337%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Genco Shipping & Trading appears to been achieving more with less, since the business is using 30% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

What We Can Learn From Genco Shipping & Trading's ROCE

In a nutshell, we're pleased to see that Genco Shipping & Trading has been able to generate higher returns from less capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing: We've identified 3 warning signs with Genco Shipping & Trading (at least 1 which shouldn't be ignored) , and understanding them would certainly be useful.

While Genco Shipping & Trading 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.