Returns At Great Lakes Dredge & Dock (NASDAQ:GLDD) Are On The Way Up
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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Great Lakes Dredge & Dock (NASDAQ:GLDD) 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 Great Lakes Dredge & Dock, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.053 = US$45m ÷ (US$1.0b - US$147m) (Based on the trailing twelve months to September 2022).
Thus, Great Lakes Dredge & Dock has an ROCE of 5.3%. Ultimately, that's a low return and it under-performs the Construction industry average of 8.1%.
Check out our latest analysis for Great Lakes Dredge & Dock
In the above chart we have measured Great Lakes Dredge & Dock'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 Great Lakes Dredge & Dock.
The Trend Of ROCE
Great Lakes Dredge & Dock is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 321% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
To bring it all together, Great Lakes Dredge & Dock has done well to increase the returns it's generating from its capital employed. Considering the stock has delivered 31% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Great Lakes Dredge & Dock (of which 2 are a bit unpleasant!) that you should know about.
While Great Lakes Dredge & Dock isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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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