Why the 30% return on capital at Eagle Bulk Shipping (NASDAQ:EGLE) should grab your attention

If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends you should watch out for. Ideally, a business will show two trends; first growth come back on capital employed (ROCE) and on the other hand, growth amount capital employed. Basically, this means that a business has profitable initiatives that it can continue to reinvest in, which is a hallmark of a blending machine. And in light of that, the trends we see at Eagle Bulk Shipping (NASDAQ:EGLE) look very promising, so let’s take a look.

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. To calculate this metric for Eagle Bulk Shipping, here is the formula:

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

0.30 = $306 million ÷ ($1.2 billion – $135 million) (Based on the last twelve months to March 2022).

Therefore, Eagle Bulk Shipping has a ROCE of 30%. In absolute terms, this is an excellent return and even better than the shipping industry average of 18%.

Check out our latest analysis for Eagle Bulk Shipping

NasdaqGS: EGLE Return on Capital Employed August 5, 2022

Above, you can see how Eagle Bulk Shipping’s current ROCE compares to its past returns on capital, but there’s little you can say about the past. If you’re interested, you can check out analyst forecasts in our free analyst forecast report for the company.

What does the ROCE trend tell us for Eagle Bulk Shipping?

Eagle Bulk Shipping recently achieved profitability, so their earlier investments appear to be paying off. The shareholders would no doubt rejoice because the company was loss-making five years ago but now generates 30% of its capital. Not only that, but the company is using 37% more capital than before, but that’s to be expected of a company trying to become profitable. This can tell us that the business has plenty of reinvestment opportunities that can generate higher returns.

The Key Takeaway

Much to the delight of most shareholders, Eagle Bulk Shipping is now profitable. And with a respectable 78% attributed to those who held the shares over the past five years, you could say these developments are starting to get the attention they deserve. 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.

One more thing: we have identified 4 warning signs with Eagle Bulk Shipping (at least 1 that can’t be skipped), and understanding them would definitely help.

If you want to see other businesses earning high returns, check out our free list of companies earning high returns with strong balance sheets here.

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.