Returns At Genco Shipping & Trading (NYSE:GNK) Are On The Way Up

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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 on that note, Genco Shipping & Trading (NYSE:GNK) looks quite promising in regards to its trends of return on capital.

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. 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)

0.043 = US$46m ÷ (US$1.1b - US$36m) (Based on the trailing twelve months to September 2023).

Thus, Genco Shipping & Trading has an ROCE of 4.3%. In absolute terms, that's a low return and it also under-performs the Shipping industry average of 9.0%.

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'd like, you can check out the forecasts from the analysts covering Genco Shipping & Trading here for free.

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

While the ROCE is still rather low for Genco Shipping & Trading, we're glad to see it heading in the right direction. We found that the returns on capital employed over the last five years have risen by 67%. The company is now earning US$0.04 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 30% less than it was five years ago, which can be indicative of a business that's improving its efficiency. Genco Shipping & Trading may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

Our Take 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. 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 Genco Shipping & Trading can keep these trends up, it could have a bright future ahead.

Genco Shipping & Trading does have some risks, we noticed 3 warning signs (and 1 which is concerning) we think you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.