The Trend Of High Returns At Perseus Mining (ASX:PRU) Has Us Very Interested

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. With that in mind, the ROCE of Perseus Mining (ASX:PRU) looks great, so lets see what the trend can tell us.

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. Analysts use this formula to calculate it for Perseus Mining:

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

0.25 = AU$567m ÷ (AU$2.4b - AU$172m) (Based on the trailing twelve months to June 2023).

Therefore, Perseus Mining has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 8.9%.

View our latest analysis for Perseus Mining

In the above chart we have measured Perseus Mining's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Perseus Mining.

So How Is Perseus Mining's ROCE Trending?

We're delighted to see that Perseus Mining is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 25% which is a sight for sore eyes. In addition to that, Perseus Mining is employing 171% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

Our Take On Perseus Mining's ROCE

Overall, Perseus Mining gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 353% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing Perseus Mining, we've discovered 1 warning sign that you should be aware of.

Perseus Mining is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.