Yahoo Finance Investors Will Want Mountain Province Diamonds' (TSE:MPVD) Growth In ROCE To Persist
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 when we looked at Mountain Province Diamonds (TSE:MPVD) and its trend of ROCE, we really liked what we saw.
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 Mountain Province Diamonds is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = CA$122m ÷ (CA$941m - CA$66m) (Based on the trailing twelve months to June 2023).
Therefore, Mountain Province Diamonds has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 2.8% generated by the Metals and Mining industry.
Check out our latest analysis for Mountain Province Diamonds
Above you can see how the current ROCE for Mountain Province Diamonds 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 Mountain Province Diamonds.
The Trend Of ROCE
Mountain Province Diamonds' ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 108% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
The Bottom Line On Mountain Province Diamonds' ROCE
To sum it up, Mountain Province Diamonds is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has dived 88% over the last five years, there may be other factors affecting the company's prospects. Still, it's worth doing some further research to see if the trends will continue into the future.
Mountain Province Diamonds does have some risks, we noticed 4 warning signs (and 2 which are a bit unpleasant) we think you should know about.
While Mountain Province Diamonds 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.
