Why The 32% Return On Capital At Kingsrose Mining (ASX:KRM) Should Have Your Attention

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. 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 Kingsrose Mining's (ASX:KRM) returns on capital, so let's have a look.

What is 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 Kingsrose Mining is:

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

0.32 = AU$17m ÷ (AU$55m - AU$2.0m) (Based on the trailing twelve months to December 2020).

Therefore, Kingsrose Mining has an ROCE of 32%. That's a fantastic return and not only that, it outpaces the average of 8.3% earned by companies in a similar industry.

Check out our latest analysis for Kingsrose Mining

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kingsrose Mining's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Kingsrose Mining, check out these free graphs here.

How Are Returns Trending?

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 12,159%. The company is now earning AU$0.3 per dollar of capital employed. In regards to capital employed, Kingsrose Mining appears to been achieving more with less, since the business is using 44% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Key Takeaway

In a nutshell, we're pleased to see that Kingsrose Mining has been able to generate higher returns from less capital. Astute investors may have an opportunity here because the stock has declined 55% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing, we've spotted 3 warning signs facing Kingsrose Mining that you might find interesting.

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. 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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