Returns Are Gaining Momentum At Eldorado Gold (TSE:ELD)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. So on that note, Eldorado Gold (TSE:ELD) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Eldorado Gold is:

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

0.02 = US$88m ÷ (US$4.7b - US$216m) (Based on the trailing twelve months to June 2023).

So, Eldorado Gold has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 3.7%.

See our latest analysis for Eldorado Gold

Above you can see how the current ROCE for Eldorado Gold 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 The Trend Of ROCE Can Tell Us

While there are companies with higher returns on capital out there, we still find the trend at Eldorado Gold promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 171% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

To bring it all together, Eldorado Gold has done well to increase the returns it's generating from its capital employed. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 85% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

Eldorado Gold does have some risks though, and we've spotted 2 warning signs for Eldorado Gold that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.