Investors will want Great Lakes Dredge & Dock (NASDAQ: GLDD) ROCE growth to persist


If you are looking for a multi-bagger, there are a few things to look out for. Ideally, a business will display two trends; first growth to recover on capital employed (ROCE) and on the other hand, an increase amount capital employed. Basically, it means that a business has profitable initiatives that it can keep reinvesting in, which is a hallmark of a dialing machine. With that in mind, we have noticed some promising trends at Great Lakes dredger and wharf (NASDAQ: GLDD) so let’s look a little deeper.

Return on capital employed (ROCE): what is it?

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 the dredge and the Great Lakes wharf is:

Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.089 = US $ 70 million ÷ (US $ 950 million – US $ 160 million) (Based on the last twelve months up to June 2021).

So, Great Lakes Dredge & Dock has a ROCE of 8.9%. On its own, this is a low number but it sits around the 9.7% average generated by the construction industry.

NasdaqGS: GLDD Return on capital employed on September 17, 2021

In the graph above, we’ve measured Great Lakes Dredge & Dock’s past ROCE against its past performance, but the future is arguably more important. If you are interested, you can view the analysts’ forecasts in our free business analyst forecast report.

What can we say about the ROCE trend of Great Lakes Dredge & Dock?

Great Lakes Dredge & Dock is promising given that its ROCE is on the rise and right. Looking at the data, we can see that although the capital employed in the company has remained relatively stable, the ROCE generated has increased by 197% over the past five years. Basically, the business generates higher returns from the same amount of capital and this is proof that there are improvements in the efficiency of the business. On this front, things are looking good, so it’s worth exploring what management has said about growth plans for the future.

The bottom line

In summary, we are delighted to see that Great Lakes Dredge & Dock has been able to increase efficiency and generate higher rates of return on the same amount of capital. And a remarkable 312% total return over the past five years tells us that investors expect more good things to come in the future. So, given that the stock has proven to have some promising trends, it is worth doing more research on the company to see if these trends are likely to continue.

Great Lakes Dredge & Dock has some risks we have noticed 3 warning signs (and 1 which is significant) we think you should know.

While Great Lakes Dredge & Dock does not currently generate the highest returns, we have compiled a list of companies that currently generate over 25% return on equity. Check it out free list here.

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

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