Yahoo Finance Investors Should Be Encouraged By Torex Gold Resources' (TSE:TXG) Returns On Capital
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. And in light of that, the trends we're seeing at Torex Gold Resources' (TSE:TXG) look very promising so lets take a look.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Torex Gold Resources is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.21 = US$279m ÷ (US$1.6b - US$243m) (Based on the trailing twelve months to December 2022).
Therefore, Torex Gold Resources has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 2.9% earned by companies in a similar industry.
See our latest analysis for Torex Gold Resources
Above you can see how the current ROCE for Torex Gold Resources compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Torex Gold Resources.
What The Trend Of ROCE Can Tell Us
The trends we've noticed at Torex Gold Resources are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 21%. 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 29%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Bottom Line
To sum it up, Torex Gold Resources has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 169% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.
On a separate note, we've found 1 warning sign for Torex Gold Resources you'll probably want to know about.
Torex Gold Resources 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.
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