Returns At Abcourt Mines (CVE:ABI) Are On The Way Up

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Abcourt Mines (CVE:ABI) 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. The formula for this calculation on Abcourt Mines is:

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

0.082 = CA$3.5m ÷ (CA$49m - CA$6.0m) (Based on the trailing twelve months to March 2021).

Therefore, Abcourt Mines has an ROCE of 8.2%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 2.5%.

See our latest analysis for Abcourt Mines

Historical performance is a great place to start when researching a stock so above you can see the gauge for Abcourt Mines' ROCE against it's prior returns. If you'd like to look at how Abcourt Mines 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 Abcourt Mines' ROCE Trend?

The fact that Abcourt Mines is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 8.2% on its capital. In addition to that, Abcourt Mines is employing 81% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On Abcourt Mines' ROCE

Long story short, we're delighted to see that Abcourt Mines' reinvestment activities have paid off and the company is now profitable. Considering the stock has delivered 15% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

On a final note, we've found 2 warning signs for Abcourt Mines that we think you should be aware of.

While Abcourt Mines 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.
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