Mandalay Resources (TSE:MND) Is Doing The Right Things To Multiply Its Share Price

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Mandalay Resources (TSE:MND) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Mandalay Resources:

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

0.16 = US$38m ÷ (US$279m - US$37m) (Based on the trailing twelve months to March 2023).

Therefore, Mandalay Resources has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 3.3% it's much better.

See our latest analysis for Mandalay Resources

In the above chart we have measured Mandalay Resources' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Mandalay Resources here for free.

The Trend Of ROCE

We're delighted to see that Mandalay Resources is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 16%, which is always encouraging. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

In Conclusion...

As discussed above, Mandalay Resources appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know about the risks facing Mandalay Resources, we've discovered 1 warning sign that you should be aware of.

While Mandalay Resources 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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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.