Orla Mining's (TSE:OLA) Returns On Capital Are Heading Higher

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. 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 Orla Mining (TSE:OLA) so let's look a bit deeper.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Orla Mining is:

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

0.074 = US$42m ÷ (US$594m - US$33m) (Based on the trailing twelve months to June 2024).

Thus, Orla Mining has an ROCE of 7.4%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 3.4%.

View our latest analysis for Orla Mining

In the above chart we have measured Orla Mining's 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 analyst report for Orla Mining .

The Trend Of ROCE

The fact that Orla Mining 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 7.4% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Orla Mining is utilizing 335% 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.

Our Take On Orla Mining's ROCE

In summary, it's great to see that Orla Mining has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 338% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

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

While Orla Mining 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.