The Return Trends At First Quantum Minerals (TSE:FM) Look Promising

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at First Quantum Minerals (TSE:FM) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 First Quantum Minerals is:

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

0.062 = US$1.4b ÷ (US$24b - US$1.7b) (Based on the trailing twelve months to March 2023).

So, First Quantum Minerals has an ROCE of 6.2%. On its own that's a low return, but compared to the average of 3.3% generated by the Metals and Mining industry, it's much better.

See our latest analysis for First Quantum Minerals

In the above chart we have measured First Quantum Minerals' 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 First Quantum Minerals.

What The Trend Of ROCE Can Tell Us

First Quantum Minerals' ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 279% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Key Takeaway

To sum it up, First Quantum Minerals is collecting higher returns from the same amount of capital, and that's impressive. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 96% return over the last five years. In light of that, we think it's worth looking further into this stock because if First Quantum Minerals can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for First Quantum Minerals that we think you should be aware of.

While First Quantum Minerals isn't earning the highest return, check out this free list of companies that are 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.