What Can The Trends At Evolution Mining (ASX:EVN) Tell Us About Their Returns?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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 Evolution Mining (ASX:EVN) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Evolution Mining is:

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

0.18 = AU$587m ÷ (AU$3.7b - AU$356m) (Based on the trailing twelve months to June 2020).

So, Evolution Mining has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 9.4% it's much better.

Check out our latest analysis for Evolution Mining

Above you can see how the current ROCE for Evolution Mining compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Evolution Mining here for free.

How Are Returns Trending?

The trends we've noticed at Evolution Mining are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 18%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 168%. So we're very much inspired by what we're seeing at Evolution Mining thanks to its ability to profitably reinvest capital.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Evolution Mining has. And a remarkable 312% 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.

Evolution Mining does have some risks though, and we've spotted 3 warning signs for Evolution Mining that you might be interested in.

While Evolution 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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