Endeavour Silver (TSE:EDR) Might Have The Makings Of A Multi-Bagger

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Endeavour Silver (TSE:EDR) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Endeavour Silver is:

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

0.04 = US$8.7m ÷ (US$253m - US$36m) (Based on the trailing twelve months to March 2021).

So, Endeavour Silver has an ROCE of 4.0%. On its own that's a low return, but compared to the average of 0.8% generated by the Metals and Mining industry, it's much better.

View our latest analysis for Endeavour Silver

Above you can see how the current ROCE for Endeavour Silver 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 Endeavour Silver's ROCE Trend?

We're delighted to see that Endeavour Silver 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 4.0% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Endeavour Silver is utilizing 180% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

One more thing to note, Endeavour Silver has decreased current liabilities to 14% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line On Endeavour Silver's ROCE

Overall, Endeavour Silver gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Astute investors may have an opportunity here because the stock has declined 23% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we've found 4 warning signs for Endeavour Silver that we think you should be aware of.

While Endeavour Silver 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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