There's Been No Shortage Of Growth Recently For Navarre Minerals' (ASX:NML) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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 Navarre Minerals (ASX:NML) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Navarre Minerals, this is the formula:

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

0.049 = AU$6.9m ÷ (AU$159m - AU$20m) (Based on the trailing twelve months to June 2022).

Thus, Navarre Minerals has an ROCE of 4.9%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 9.8%.

View our latest analysis for Navarre Minerals

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

How Are Returns Trending?

Navarre Minerals has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 4.9% on its capital. In addition to that, Navarre Minerals is employing 1,885% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In Conclusion...

Overall, Navarre Minerals gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business.

One final note, you should learn about the 2 warning signs we've spotted with Navarre Minerals (including 1 which is a bit concerning) .

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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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.