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What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Auric Mining (ASX:AWJ) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Auric Mining:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = AU$2.3m ÷ (AU$17m - AU$364k) (Based on the trailing twelve months to June 2024).
Thus, Auric Mining has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 10% it's much better.
View our latest analysis for Auric Mining
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 Auric Mining.
What Does the ROCE Trend For Auric Mining Tell Us?
Auric Mining has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making three years ago but is is now generating 14% on its capital. In addition to that, Auric Mining is employing 68% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
The Key Takeaway
In summary, it's great to see that Auric Mining has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 172% to shareholders over the last three years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Auric Mining does have some risks though, and we've spotted 3 warning signs for Auric Mining that you might be interested in.