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There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we’d want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. With that in mind, the ROCE of Auriant Mining (STO:AUR) looks great, so lets see what the trend can tell us.
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. The formula for this calculation on Auriant Mining is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.48 = kr187m ÷ (kr521m – kr135m) (Based on the trailing twelve months to December 2020).
Therefore, Auriant Mining has an ROCE of 48%. In absolute terms that’s a great return and it’s even better than the Metals and Mining industry average of 5.2%.
See our latest analysis for Auriant Mining
In the above chart we have measured Auriant Mining’s 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 report on analyst forecasts for the company.
What Can We Tell From Auriant Mining’s ROCE Trend?
Auriant Mining is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 48%. The company is effectively making more money per dollar of capital used, and it’s worth noting that the amount of capital has increased too, by 69%. So we’re very much inspired by what we’re seeing at Auriant Mining thanks to its ability to profitably reinvest capital.
On a related note, the company’s ratio of current liabilities to total assets has decreased to 26%, which basically reduces it’s funding from the likes of short-term creditors or suppliers. 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 Auriant Mining can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has only returned 34% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we’d look further into this stock in case it has more traits that could make it multiply in the long term.
On a final note, we found 4 warning signs for Auriant Mining (1 is a bit concerning) you should be aware of.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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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