Yahoo Finance There's Been No Shortage Of Growth Recently For Gulfport Energy's (NYSE:GPOR) Returns On Capital
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Gulfport Energy's (NYSE:GPOR) returns on capital, so let's have a look.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Gulfport Energy, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = US$536m ÷ (US$3.3b - US$338m) (Based on the trailing twelve months to March 2024).
Therefore, Gulfport Energy has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Oil and Gas industry average of 14% it's much better.
See our latest analysis for Gulfport Energy
In the above chart we have measured Gulfport Energy's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Gulfport Energy for free.
What Can We Tell From Gulfport Energy's ROCE Trend?
We're pretty happy with how the ROCE has been trending at Gulfport Energy. The data shows that returns on capital have increased by 169% over the trailing five years. The company is now earning US$0.2 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 48% less than it was five years ago, which can be indicative of a business that's improving its efficiency. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.
What We Can Learn From Gulfport Energy's ROCE
From what we've seen above, Gulfport Energy has managed to increase it's returns on capital all the while reducing it's capital base. And with a respectable 70% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
If you'd like to know about the risks facing Gulfport Energy, we've discovered 2 warning signs that you should be aware of.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
