Investors Will Want Argonaut Gold's (TSE:AR) Growth In ROCE To Persist

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Argonaut Gold (TSE:AR) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Argonaut Gold is:

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

0.14 = US$144m ÷ (US$1.2b - US$131m) (Based on the trailing twelve months to June 2021).

So, Argonaut Gold has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 4.2% generated by the Metals and Mining industry.

Check out our latest analysis for Argonaut Gold

roce

Above you can see how the current ROCE for Argonaut Gold compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Argonaut Gold here for free.

So How Is Argonaut Gold's ROCE Trending?

The fact that Argonaut Gold is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 14% on its capital. Not only that, but the company is utilizing 80% 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.

What We Can Learn From Argonaut Gold's ROCE

In summary, it's great to see that Argonaut Gold has managed to break into profitability and is continuing to reinvest in its business. And with a respectable 66% 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. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing Argonaut Gold, we've discovered 2 warning signs that you should be aware of.

While Argonaut Gold may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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