The Return Trends At Perseus Mining (ASX:PRU) Look Promising

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 on that note, Perseus Mining (ASX:PRU) 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. Analysts use this formula to calculate it for Perseus Mining:

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

0.12 = AU$149m ÷ (AU$1.3b - AU$114m) (Based on the trailing twelve months to December 2020).

Thus, Perseus Mining has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.9% generated by the Metals and Mining industry.

View our latest analysis for Perseus Mining

Above you can see how the current ROCE for Perseus Mining compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Perseus Mining's ROCE Trend?

The trends we've noticed at Perseus Mining are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 12%. 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 83%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

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 Perseus Mining has. And a remarkable 172% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 1 warning sign facing Perseus Mining that you might find interesting.

While Perseus Mining may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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