Investors Should Be Encouraged By Genco Shipping & Trading's (NYSE:GNK) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 the ROCE trend of Genco Shipping & Trading (NYSE:GNK) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Genco Shipping & Trading, this is the formula:

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

0.21 = US$244m ÷ (US$1.2b - US$49m) (Based on the trailing twelve months to June 2022).

Thus, Genco Shipping & Trading has an ROCE of 21%. In absolute terms that's a very respectable return and compared to the Shipping industry average of 20% it's pretty much on par.

View our latest analysis for Genco Shipping & Trading

Above you can see how the current ROCE for Genco Shipping & Trading compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Genco Shipping & Trading's ROCE Trending?

Like most people, we're pleased that Genco Shipping & Trading is now generating some pretax earnings. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 21% on their capital employed. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 25%. This could potentially mean that the company is selling some of its assets.

The Bottom Line On Genco Shipping & Trading's ROCE

In the end, Genco Shipping & Trading has proven it's capital allocation skills are good with those higher returns from less amount of capital. Considering the stock has delivered 24% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One more thing: We've identified 3 warning signs with Genco Shipping & Trading (at least 1 which is a bit concerning) , and understanding these would certainly be useful.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.