Global Ship Lease (NYSE:GSL) Is Looking To Continue Growing Its Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. So when we looked at Global Ship Lease (NYSE:GSL) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Global Ship Lease is:

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

0.18 = US$333m ÷ (US$2.1b - US$328m) (Based on the trailing twelve months to June 2022).

Thus, Global Ship Lease has an ROCE of 18%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Shipping industry average of 20%.

View our latest analysis for Global Ship Lease

In the above chart we have measured Global Ship Lease'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 Global Ship Lease.

What Does the ROCE Trend For Global Ship Lease Tell Us?

The trends we've noticed at Global Ship Lease are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 150% more capital is being employed now too. So we're very much inspired by what we're seeing at Global Ship Lease thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that Global Ship Lease is reaping the rewards from prior investments and is growing its capital base. 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.

Global Ship Lease does have some risks though, and we've spotted 2 warning signs for Global Ship Lease that you might be interested in.

While Global Ship Lease 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.