We Like These Underlying Trends At Ikwezi Mining (ASX:IKW)

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Ikwezi Mining (ASX:IKW) 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. Analysts use this formula to calculate it for Ikwezi Mining:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.045 = AU$963k ÷ (AU$23m - AU$1.8m) (Based on the trailing twelve months to June 2020).

Therefore, Ikwezi Mining has an ROCE of 4.5%. Even though it's in line with the industry average of 4.5%, it's still a low return by itself.

Check out our latest analysis for Ikwezi Mining

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 Ikwezi Mining's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Ikwezi 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 4.5% which is a sight for sore eyes. In addition to that, Ikwezi Mining is employing 29% 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.

Our Take On Ikwezi Mining's ROCE

Long story short, we're delighted to see that Ikwezi Mining's reinvestment activities have paid off and the company is now profitable. And a remarkable 122% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know about the risks facing Ikwezi Mining, we've discovered 3 warning signs that you should be aware of.

While Ikwezi Mining isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. 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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