Here’s What’s Happening With Returns At Genco Shipping & Trading (NYSE:GNK)
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 Genco Shipping & Trading (NYSE:GNK) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What is it?
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. The formula for this calculation on Genco Shipping & Trading is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0025 = US$3.0m ÷ (US$1.3b - US$114m) (Based on the trailing twelve months to September 2020).
Thus, Genco Shipping & Trading has an ROCE of 0.3%. Ultimately, that's a low return and it under-performs the Shipping industry average of 6.2%.
Check out 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.
The Trend Of ROCE
It's great to see that Genco Shipping & Trading has started to generate some pre-tax earnings from prior investments. The company was generating losses five years ago, but now it's turned around, earning 0.3% which is no doubt a relief for some early shareholders. 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 23%. Genco Shipping & Trading could be selling under-performing assets since the ROCE is improving.
In Conclusion...
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 investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 89% return over the last five years. 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.
While Genco Shipping & Trading looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether GNK is currently trading for a fair price.
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.
This article by Simply Wall St is general in nature. 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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