If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Kingsrose Mining's (ASX:KRM) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Kingsrose Mining:

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

0.38 = AU$22m ÷ (AU$60m - AU$3.1m) (Based on the trailing twelve months to June 2020).

So, Kingsrose Mining has an ROCE of 38%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 9.6%.

See our latest analysis for Kingsrose Mining

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kingsrose Mining's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Kingsrose Mining, check out these free graphs here.

How Are Returns Trending?

You'd find it hard not to be impressed with the ROCE trend at Kingsrose Mining. The data shows that returns on capital have increased by 927% over the trailing five years. The company is now earning AU$0.4 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 39% less than it was five years ago, which can be indicative of a business that's improving its efficiency. Kingsrose Mining may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

Our Take On Kingsrose Mining's ROCE

In a nutshell, we're pleased to see that Kingsrose Mining has been able to generate higher returns from less capital. And since the stock has dived 83% over the last five years, there may be other factors affecting the company's prospects. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

On a separate note, we've found 2 warning signs for Kingsrose Mining you'll probably want to know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

This article by Simply Wall St is general in nature. 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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