CSN Mineração (BVMF:CMIN3) Is Very Good At Capital Allocation

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of CSN Mineração (BVMF:CMIN3) looks great, so lets see what the trend can tell us.

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 CSN Mineração, this is the formula:

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

0.39 = R$8.1b ÷ (R$24b - R$3.6b) (Based on the trailing twelve months to March 2022).

Therefore, CSN Mineração has an ROCE of 39%. That's a fantastic return and not only that, it outpaces the average of 30% earned by companies in a similar industry.

View our latest analysis for CSN Mineração

In the above chart we have measured CSN Mineração's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering CSN Mineração here for free.

What Does the ROCE Trend For CSN Mineração Tell Us?

Investors would be pleased with what's happening at CSN Mineração. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 39%. Basically the business is earning more per dollar of capital invested and in addition to that, 59% more capital is being employed now too. So we're very much inspired by what we're seeing at CSN Mineração thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that CSN Mineração can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And since the stock has fallen 53% over the last year, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

CSN Mineração does have some risks, we noticed 4 warning signs (and 3 which are a bit unpleasant) we think you should know about.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.