Investors Should Be Encouraged By Coronado Global Resources' (ASX:CRN) Returns On Capital

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Coronado Global Resources' (ASX:CRN) returns on capital, so let's have a look.

What Is 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 Coronado Global Resources, this is the formula:

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

0.40 = US$823m ÷ (US$2.6b - US$580m) (Based on the trailing twelve months to March 2023).

Therefore, Coronado Global Resources has an ROCE of 40%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 11%.

See our latest analysis for Coronado Global Resources

In the above chart we have measured Coronado Global Resources' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Coronado Global Resources here for free.

SWOT Analysis for Coronado Global Resources

So How Is Coronado Global Resources' ROCE Trending?

We like the trends that we're seeing from Coronado Global Resources. The data shows that returns on capital have increased substantially over the last five years to 40%. Basically the business is earning more per dollar of capital invested and in addition to that, 49% more capital is being employed now too. So we're very much inspired by what we're seeing at Coronado Global Resources thanks to its ability to profitably reinvest capital.

What We Can Learn From Coronado Global Resources' ROCE

All in all, it's terrific to see that Coronado Global Resources is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 67% to shareholders over the last three years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Coronado Global Resources can keep these trends up, it could have a bright future ahead.

Coronado Global Resources does have some risks, we noticed 2 warning signs (and 1 which can't be ignored) we think you should know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.