Globus Maritime's (NASDAQ:GLBS) Returns On Capital Are Heading Higher
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Globus Maritime (NASDAQ:GLBS) 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. Analysts use this formula to calculate it for Globus Maritime:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.06 = US$12m ÷ (US$224m - US$18m) (Based on the trailing twelve months to March 2023).
Thus, Globus Maritime has an ROCE of 6.0%. Ultimately, that's a low return and it under-performs the Shipping industry average of 15%.
View our latest analysis for Globus Maritime
In the above chart we have measured Globus Maritime'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 Globus Maritime.
So How Is Globus Maritime's ROCE Trending?
Globus Maritime has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 6.0% which is a sight for sore eyes. In addition to that, Globus Maritime is employing 310% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
One more thing to note, Globus Maritime has decreased current liabilities to 7.9% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.
Our Take On Globus Maritime's ROCE
In summary, it's great to see that Globus Maritime has managed to break into profitability and is continuing to reinvest in its business. Although the company may be facing some issues elsewhere since the stock has plunged 100% in the last five years. Regardless, we think the underlying fundamentals warrant this stock for further investigation.
Globus Maritime does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...
While Globus Maritime 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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