Ship part

Global Ship Lease (NYSE:GSL) Seeks to Continue to Increase Returns on Capital

If you’re looking for a multi-bagger, there are a few things to watch out for. In a perfect world, we would like to see a company invest more capital in their business and ideally the returns from that capital also increase. Simply put, these types of businesses are slot machines, meaning they continually reinvest their profits at ever-higher rates of return. So when we looked Global Ship Charter (NYSE:GSL) and its ROCE trend, we really liked what we saw.

Understanding return on capital employed (ROCE)

Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business 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 = $333 million ÷ ($2.1 billion – $328 million) (Based on the last twelve months to June 2022).

Thereby, Global Ship Lease has a ROCE of 18%. In absolute terms, that’s a pretty normal return, and it’s a bit close to the shipping industry average of 20%.

Check out our latest analysis for Global Ship Lease

NYSE: GSL Return on Capital Employed August 28, 2022

In the chart above, we measured Global Ship Lease’s past ROCE against its past performance, but the future is arguably more important. If you want to see what analysts predict for the future, you should check out our free report for Global Ship Lease.

What does the ROCE trend tell us for Global Ship Lease?

The trends we have noticed at Global Ship Lease are quite reassuring. Over the past five years, return on capital employed has increased substantially to 18%. Basically, the business earns more per dollar of invested capital and on top of that, 150% additional capital is also utilized now. So we’re very inspired by what we’re seeing in Global Ship Lease with its ability to reinvest capital profitably.

The Key Takeaway

Overall, it is great to see that Global Ship Lease is reaping the rewards of past investments and increasing its capital base. And since the stock has performed exceptionally well over the past five years, these trends are taken into account by investors. So given that the stock has proven to have some promising trends, it’s worth researching the company further to see if those trends are likely to persist.

Global Ship Lease does come with some risks though, and we have spotted 2 warning signs for Global Ship Lease that might interest you.

Although Global Ship Lease does not generate the highest return, check out this free list of companies that achieve high returns on equity with strong balance sheets.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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