Yahoo Finance Metals Exploration (LON:MTL) Could Become A Multi-Bagger
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at the ROCE trend of Metals Exploration (LON:MTL) we really liked what we saw.
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 Metals Exploration, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.37 = US$35m ÷ (US$134m - US$39m) (Based on the trailing twelve months to June 2021).
Therefore, Metals Exploration has an ROCE of 37%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 18%.
Check out our latest analysis for Metals Exploration
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Metals Exploration's past further, check out this free graph of past earnings, revenue and cash flow.
What Can We Tell From Metals Exploration's ROCE Trend?
We're delighted to see that Metals Exploration is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but now it's turned around, earning 37% which is no doubt a relief for some early shareholders. Additionally, the business is utilizing 52% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.
What We Can Learn From Metals Exploration's ROCE
In summary, it's great to see that Metals Exploration has been able to turn things around and earn higher returns on lower amounts of capital. Although the company may be facing some issues elsewhere since the stock has plunged 75% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Metals Exploration (of which 1 is significant!) that you should know about.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
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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.
