Yahoo Finance Returns At Abcourt Mines (CVE:ABI) Are On The Way Up
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Abcourt Mines' (CVE:ABI) returns on capital, so let's have a look.
Understanding Return On Capital Employed (ROCE)
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. To calculate this metric for Abcourt Mines, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.082 = CA$3.5m ÷ (CA$49m - CA$6.0m) (Based on the trailing twelve months to March 2021).
Thus, Abcourt Mines has an ROCE of 8.2%. On its own that's a low return, but compared to the average of 3.8% generated by the Metals and Mining industry, it's much better.
View our latest analysis for Abcourt Mines
Historical performance is a great place to start when researching a stock so above you can see the gauge for Abcourt Mines' ROCE against it's prior returns. If you'd like to look at how Abcourt Mines has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Abcourt Mines Tell Us?
The fact that Abcourt Mines is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 8.2% which is a sight for sore eyes. Not only that, but the company is utilizing 81% more capital than before, but that's to be expected from a company 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 On Abcourt Mines' ROCE
To the delight of most shareholders, Abcourt Mines has now broken into profitability. Since the stock has only returned 18% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.
One more thing to note, we've identified 2 warning signs with Abcourt Mines and understanding them should be part of your investment process.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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