We Like These Underlying Return On Capital Trends At Auric Mining (ASX:AWJ)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. 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 Auric Mining's (ASX:AWJ) 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. The formula for this calculation on Auric Mining is:

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

0.14 = AU$2.3m ÷ (AU$17m - AU$364k) (Based on the trailing twelve months to June 2024).

Therefore, Auric Mining has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 10.0% generated by the Metals and Mining industry.

View our latest analysis for Auric 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'd like to look at how Auric Mining has performed in the past in other metrics, you can view this free graph of Auric Mining's past earnings, revenue and cash flow.

How Are Returns Trending?

We're delighted to see that Auric Mining is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses three years ago, but now it's earning 14% which is a sight for sore eyes. Not only that, but the company is utilizing 68% 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 Auric Mining's ROCE

Overall, Auric Mining gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Since the stock has returned a staggering 245% to shareholders over the last three years, it looks like investors are recognizing these changes. 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 Auric Mining, we've discovered 2 warning signs that you should be aware of.

While Auric 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. 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.