Yahoo Finance There's Been No Shortage Of Growth Recently For Perseus Mining's (ASX:PRU) Returns On Capital
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Perseus Mining (ASX:PRU) so let's look a bit deeper.
Return On Capital Employed (ROCE): What Is It?
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 Perseus Mining, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = AU$273m ÷ (AU$2.0b - AU$168m) (Based on the trailing twelve months to June 2022).
So, Perseus Mining has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 10% generated by the Metals and Mining industry.
View our latest analysis for Perseus Mining
In the above chart we have measured Perseus Mining's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What The Trend Of ROCE Can Tell Us
Perseus Mining has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 15% which is a sight for sore eyes. Not only that, but the company is utilizing 138% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
What We Can Learn From Perseus Mining's ROCE
In summary, it's great to see that Perseus Mining has managed to break into profitability and is continuing to reinvest in its business. And a remarkable 603% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
If you'd like to know more about Perseus Mining, we've spotted 2 warning signs, and 1 of them is potentially serious.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
