Torex Gold Resources (TSE:TXG) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. 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 Torex Gold Resources (TSE:TXG) so let's look a bit deeper.

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. To calculate this metric for Torex Gold Resources, this is the formula:

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

0.13 = US$214m ÷ (US$2.0b - US$318m) (Based on the trailing twelve months to June 2024).

Thus, Torex Gold Resources has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 3.3% it's much better.

Check out our latest analysis for Torex Gold Resources

Above you can see how the current ROCE for Torex Gold Resources 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 Torex Gold Resources .

How Are Returns Trending?

We like the trends that we're seeing from Torex Gold Resources. Over the last five years, returns on capital employed have risen substantially to 13%. 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 67%. So we're very much inspired by what we're seeing at Torex Gold Resources thanks to its ability to profitably reinvest capital.

The Key Takeaway

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Torex Gold Resources has. Since the stock has returned a solid 85% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Torex Gold Resources does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

While Torex Gold 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.