If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of Trigon Metals (CVE:TM) we really liked what we saw.

Understanding 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. To calculate this metric for Trigon Metals, this is the formula:

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

0.21 = US$5.1m ÷ (US$39m - US$15m) (Based on the trailing twelve months to June 2024).

Thus, Trigon Metals has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 3.3% earned by companies in a similar industry.

See our latest analysis for Trigon Metals

In the above chart we have measured Trigon Metals' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Trigon Metals .

What The Trend Of ROCE Can Tell Us

Trigon Metals has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses four years ago, but now it's earning 21% which is a sight for sore eyes. Not only that, but the company is utilizing 2,620% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On Trigon Metals' ROCE

Long story short, we're delighted to see that Trigon Metals' reinvestment activities have paid off and the company is now profitable. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. With that in mind, we believe the promising trends warrant this stock for further investigation.

Trigon Metals does have some risks, we noticed 4 warning signs (and 1 which shouldn't be ignored) we think you should know about.

Trigon Metals is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.