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There's Been No Shortage Of Growth Recently For Genco Shipping & Trading's (NYSE:GNK) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Genco Shipping & Trading (NYSE:GNK) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

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 Genco Shipping & Trading is:

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

0.15 = US$167m ÷ (US$1.2b - US$37m) (Based on the trailing twelve months to December 2022).

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Therefore, Genco Shipping & Trading has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Shipping industry average of 16%.

Check out our latest analysis for Genco Shipping & Trading

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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'd like to see what analysts are forecasting going forward, you should check out our free report for Genco Shipping & Trading.

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

We're delighted to see that Genco Shipping & Trading is reaping rewards from its investments and has now broken into profitability. While the business is profitable now, it used to be incurring losses on invested capital five years ago. Additionally, the business is utilizing 23% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. Genco Shipping & Trading could be selling under-performing assets since the ROCE is improving.

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. Considering the stock has delivered 39% 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.

If you want to continue researching Genco Shipping & Trading, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.

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.

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