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What Do The Returns At Golden Ocean Group (NASDAQ:GOGL) Mean Going Forward?

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·3 min read
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Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Golden Ocean Group (NASDAQ:GOGL) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Golden Ocean Group, this is the formula:

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

0.02 = US$50m ÷ (US$2.7b - US$228m) (Based on the trailing twelve months to September 2020).

Thus, Golden Ocean Group has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Shipping industry average of 6.1%.

See our latest analysis for Golden Ocean Group

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In the above chart we have measured Golden Ocean Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

Golden Ocean Group has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 2.0%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

In Conclusion...

In summary, we're delighted to see that Golden Ocean Group has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 14% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

Golden Ocean Group does have some risks though, and we've spotted 1 warning sign for Golden Ocean Group that you might be interested in.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.