We Like These Underlying Return On Capital Trends At Titan Mining (TSE:TI)

What trends should we look for it we want to identify stocks that can 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Titan Mining (TSE:TI) 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. To calculate this metric for Titan Mining, this is the formula:

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

0.038 = US$2.6m ÷ (US$75m - US$6.8m) (Based on the trailing twelve months to March 2022).

So, Titan Mining has an ROCE of 3.8%. On its own that's a low return, but compared to the average of 2.4% generated by the Metals and Mining industry, it's much better.

See our latest analysis for Titan Mining

Historical performance is a great place to start when researching a stock so above you can see the gauge for Titan Mining's ROCE against it's prior returns. If you'd like to look at how Titan Mining has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Titan Mining's ROCE Trend?

Titan Mining has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 3.8% on its capital. In addition to that, Titan Mining is employing 111% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a related note, the company's ratio of current liabilities to total assets has decreased to 9.1%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

What We Can Learn From Titan Mining's ROCE

Overall, Titan Mining 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 investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 42% return over the last three years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching Titan Mining, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Titan Mining 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.