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Global Ship Lease (NYSE:GSL) knows how to use capital effectively

If we want to find a stock that could multiply over the long term, what underlying trends should we look for? In a perfect world, we would like to see a company investing more capital into its business and, ideally, the earnings generated from that capital also increase. Simply put, these types of companies are compound interest machines, meaning they continually reinvest their profits at ever-increasing returns. So when we looked at the ROCE trend of Global Ship Leasing (NYSE:GSL) We really liked what we saw.

What is return on capital employed (ROCE)?

For those who don’t know, ROCE is a measure of a company’s annual profit before tax (its return) relative to the capital employed in the business. To calculate this metric for Global Ship Lease, the formula is:

Return on capital = earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)

0.20 = $374 million ÷ ($2.2 billion – $266 million) (Based on the last twelve months to March 2024).

Therefore, Global Ship Lease has a ROCE of 20%. In absolute terms, this is a great return and is even higher than the shipping industry average of 8.4%.

Check out our latest analysis for Global Ship Lease

NYSE:GSL Return on Capital July 11, 2024

In the chart above, we have compared Global Ship Lease’s ROCE with its past performance, but the future is arguably more important. If you want, you can see the analysts’ forecasts for Global Ship Lease for free.

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

Investors would be pleased with what’s happening at Global Ship Lease. Over the last five years, the return on capital has increased significantly to 20%. The company is effectively making more money per dollar of capital employed, and it’s worth noting that the amount of capital employed has also increased by 69%. So we’re very excited about what we’re seeing at Global Ship Lease thanks to its ability to profitably reinvest capital.

What we can learn from Global Ship Lease’s ROCE

All in all, it’s great to see Global Ship Lease reaping the rewards of past investments and building its capital base. With the stock returning an astonishing 299% to shareholders over the past five years, it seems like investors are starting to recognize these changes. Still, we think the company deserves a closer look given its promising fundamentals.

Global Ship Lease carries some risks, as we have found 2 warning signs (and 1 that is causing a little concern) that we think you should know about.

Global Ship Lease is not the only stock that offers high returns. To learn more, visit our free List of companies with high returns on equity and solid fundamentals.

Valuation is complex, but we help simplify it.

Find out if Global Ship Lease may be overvalued or undervalued by reading our comprehensive analysis, which includes: Fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View free analysis

Do you have feedback on this article? Are you concerned about the content? Get in touch directly from us. Alternatively, send an email to editorial-team (at) simplywallst.com.

This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.

Valuation is complex, but we help simplify it.

Find out if Global Ship Lease may be overvalued or undervalued by reading our comprehensive analysis, which includes: Fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View free analysis

Do you have feedback on this article? Are you interested in the content? Contact us directly. Alternatively, send an email to [email protected]

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