The Return Trends At OceanaGold (TSE:OGC) Look Promising

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, OceanaGold (TSE:OGC) looks quite promising in regards to its trends of return on capital.

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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 OceanaGold is:

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

0.18 = US$407m ÷ (US$2.6b - US$329m) (Based on the trailing twelve months to March 2025).

Thus, OceanaGold has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 4.2% generated by the Metals and Mining industry.

See our latest analysis for OceanaGold

Above you can see how the current ROCE for OceanaGold compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering OceanaGold for free.

What Does the ROCE Trend For OceanaGold Tell Us?

We like the trends that we're seeing from OceanaGold. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 20%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On OceanaGold's ROCE

To sum it up, OceanaGold has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 85% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, OceanaGold does come with some risks, and we've found 1 warning sign that you should be aware of.

While OceanaGold 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.