The Return Trends At Abcourt Mines (CVE:ABI) Look Promising

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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, Abcourt Mines (CVE:ABI) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested 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)

0.071 = CA$2.9m ÷ (CA$47m - CA$6.0m) (Based on the trailing twelve months to December 2020).

Therefore, Abcourt Mines has an ROCE of 7.1%. On its own that's a low return, but compared to the average of 0.8% generated by the Metals and Mining industry, it's much better.

Check out our latest analysis for Abcourt Mines

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Abcourt Mines' past further, check out 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. The company was generating losses five years ago, but now it's earning 7.1% which is a sight for sore eyes. 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. 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.

In Conclusion...

Long story short, we're delighted to see that Abcourt Mines' reinvestment activities have paid off and the company is now profitable. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 47% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we've found 1 warning sign for Abcourt Mines that we think you should be aware of.

While Abcourt Mines 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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