There's Been No Shortage Of Growth Recently For Gulf Island Fabrication's (NASDAQ:GIFI) Returns On Capital

Simply Wall St · 05/08 10:19

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 Gulf Island Fabrication's (NASDAQ:GIFI) returns on capital, so let's have a look.

We've discovered 1 warning sign about Gulf Island Fabrication. View them for free.

What Is 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. Analysts use this formula to calculate it for Gulf Island Fabrication:

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

0.059 = US$6.8m ÷ (US$138m - US$23m) (Based on the trailing twelve months to March 2025).

Therefore, Gulf Island Fabrication has an ROCE of 5.9%. Ultimately, that's a low return and it under-performs the Energy Services industry average of 11%.

See our latest analysis for Gulf Island Fabrication

roce
NasdaqGS:GIFI Return on Capital Employed May 8th 2025

Historical performance is a great place to start when researching a stock so above you can see the gauge for Gulf Island Fabrication's ROCE against it's prior returns. If you're interested in investigating Gulf Island Fabrication's past further, check out this free graph covering Gulf Island Fabrication's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

It's great to see that Gulf Island Fabrication has started to generate some pre-tax earnings from prior investments. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 5.9% on their capital employed. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 28%. Gulf Island Fabrication could be selling under-performing assets since the ROCE is improving.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 16%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

In Conclusion...

In summary, it's great to see that Gulf Island Fabrication has been able to turn things around and earn higher returns on lower amounts of capital. And a remarkable 116% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Like most companies, Gulf Island Fabrication does come with some risks, and we've found 1 warning sign that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.