If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. 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 CNMC Goldmine Holdings (Catalist:5TP) 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. Analysts use this formula to calculate it for CNMC Goldmine Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = US$7.7m ÷ (US$60m - US$9.2m) (Based on the trailing twelve months to December 2023).
Therefore, CNMC Goldmine Holdings has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 8.8% it's much better.
Check out our latest analysis for CNMC Goldmine Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for CNMC Goldmine Holdings' ROCE against it's prior returns. If you'd like to look at how CNMC Goldmine Holdings has performed in the past in other metrics, you can view this free graph of CNMC Goldmine Holdings' past earnings, revenue and cash flow.
How Are Returns Trending?
CNMC Goldmine Holdings' 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 34% 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
Our Take On CNMC Goldmine Holdings' ROCE
In summary, we're delighted to see that CNMC Goldmine Holdings has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Considering the stock has delivered 4.6% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.