CSN Mineração (BVMF:CMIN3) Might Become A Compounding Machine

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. 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 ran our eye over CSN Mineração's (BVMF:CMIN3) trend of ROCE, we really liked what we saw.

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 CSN Mineração:

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

0.24 = R$6.2b ÷ (R$31b - R$5.2b) (Based on the trailing twelve months to June 2024).

Therefore, CSN Mineração has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 8.7%.

See 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're interested, you can view the analysts predictions in our free analyst report for CSN Mineração .

What Can We Tell From CSN Mineração's ROCE Trend?

In terms of CSN Mineração's history of ROCE, it's quite impressive. Over the past five years, ROCE has remained relatively flat at around 24% and the business has deployed 91% more capital into its operations. Now considering ROCE is an attractive 24%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. You'll see this when looking at well operated businesses or favorable business models.

The Key Takeaway

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And since the stock has risen strongly over the last three years, it appears the market might expect this trend to continue. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you'd like to know more about CSN Mineração, we've spotted 2 warning signs, and 1 of them can't be ignored.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.