What Do The Returns At Kingsrose Mining (ASX:KRM) Mean Going Forward?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 on that note, Kingsrose Mining (ASX:KRM) looks quite promising in regards to its trends of return on capital.

What is 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. To calculate this metric for Kingsrose Mining, this is the formula:

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

0.16 = AU$8.7m ÷ (AU$55m - AU$2.0m) (Based on the trailing twelve months to December 2020).

Thus, Kingsrose Mining has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 11% it's much better.

See our latest analysis for Kingsrose 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 Kingsrose Mining's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Kingsrose Mining Tell Us?

Kingsrose Mining has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 6,088%. The company is now earning AU$0.2 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 44% less capital than it was five years ago. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Bottom Line

In the end, Kingsrose Mining has proven it's capital allocation skills are good with those higher returns from less amount of capital. Although the company may be facing some issues elsewhere since the stock has plunged 80% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.

If you want to continue researching Kingsrose Mining, you might be interested to know about the 3 warning signs that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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