Yahoo Finance Griffin Mining (LON:GFM) Is Looking To Continue Growing Its Returns On Capital
What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Griffin Mining (LON:GFM) looks quite promising in regards to its trends of return on capital.
What is Return On Capital Employed (ROCE)?
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. To calculate this metric for Griffin Mining, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = US$37m ÷ (US$321m - US$41m) (Based on the trailing twelve months to December 2021).
Thus, Griffin Mining has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Metals and Mining industry average of 14%.
View our latest analysis for Griffin Mining
In the above chart we have measured Griffin 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 Griffin Mining's ROCE Trend?
We like the trends that we're seeing from Griffin Mining. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 84% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
On a related note, the company's ratio of current liabilities to total assets has decreased to 13%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Griffin Mining has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.
What We Can Learn From Griffin Mining's ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Griffin Mining has. And with a respectable 42% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Griffin Mining can keep these trends up, it could have a bright future ahead.
Like most companies, Griffin Mining does come with some risks, and we've found 1 warning sign that you should be aware of.
While Griffin Mining isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
