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There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Orvana Minerals (TSE:ORV) so let's look a bit deeper.
Return On Capital Employed (ROCE): What Is It?
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. Analysts use this formula to calculate it for Orvana Minerals:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.055 = US$4.3m ÷ (US$116m - US$37m) (Based on the trailing twelve months to June 2024).
Therefore, Orvana Minerals has an ROCE of 5.5%. On its own that's a low return, but compared to the average of 3.3% generated by the Metals and Mining industry, it's much better.
Check out our latest analysis for Orvana Minerals
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Orvana Minerals.
So How Is Orvana Minerals' ROCE Trending?
It's great to see that Orvana Minerals has started to generate some pre-tax earnings from prior investments. The company was generating losses five years ago, but now it's turned around, earning 5.5% which is no doubt a relief for some early shareholders. 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 31%. This could potentially mean that the company is selling some of its assets.
The Bottom Line
In a nutshell, we're pleased to see that Orvana Minerals has been able to generate higher returns from less capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
On a final note, we've found 1 warning sign for Orvana Minerals that we think you should be aware of.