Yahoo Finance The Return Trends At Kingsgate Consolidated (ASX:KCN) Look Promising
What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. So when we looked at Kingsgate Consolidated (ASX:KCN) 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 Kingsgate Consolidated is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = AU$14m ÷ (AU$127m - AU$32m) (Based on the trailing twelve months to June 2023).
So, Kingsgate Consolidated has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 10% it's much better.
See our latest analysis for Kingsgate Consolidated
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 Kingsgate Consolidated's past further, check out this free graph covering Kingsgate Consolidated's past earnings, revenue and cash flow.
What Does the ROCE Trend For Kingsgate Consolidated Tell Us?
Kingsgate Consolidated has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 14% on its capital. In addition to that, Kingsgate Consolidated is employing 67% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
The Bottom Line
In summary, it's great to see that Kingsgate Consolidated has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 537% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Kingsgate Consolidated does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is concerning...
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.
