The Trend Of High Returns At Lundin Gold (TSE:LUG) Has Us Very Interested

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Lundin Gold's (TSE:LUG) returns on capital, so let's have a look.

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

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. Analysts use this formula to calculate it for Lundin Gold:

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

0.28 = US$366m ÷ (US$1.5b - US$198m) (Based on the trailing twelve months to March 2024).

Thus, Lundin Gold has an ROCE of 28%. That's a fantastic return and not only that, it outpaces the average of 0.8% earned by companies in a similar industry.

Check out our latest analysis for Lundin Gold

Above you can see how the current ROCE for Lundin 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 analyst report for Lundin Gold .

What Can We Tell From Lundin Gold's ROCE Trend?

The fact that Lundin Gold is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 28% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Lundin Gold is utilizing 30% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In Conclusion...

Overall, Lundin Gold gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 213% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 2 warning signs with Lundin Gold and understanding them should be part of your investment process.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com