Alphamin Resources (CVE:AFM) Is Investing Its Capital With Increasing Efficiency

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Speaking of which, we noticed some great changes in Alphamin Resources' (CVE:AFM) returns on capital, so let's have a look.

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

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

0.34 = US$136m ÷ (US$490m - US$97m) (Based on the trailing twelve months to March 2023).

So, Alphamin Resources has an ROCE of 34%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 3.3%.

See our latest analysis for Alphamin Resources

Above you can see how the current ROCE for Alphamin Resources compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Alphamin Resources.

SWOT Analysis for Alphamin Resources

What Does the ROCE Trend For Alphamin Resources Tell Us?

Alphamin Resources has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 34% which is a sight for sore eyes. Not only that, but the company is utilizing 171% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

Our Take On Alphamin Resources' ROCE

Overall, Alphamin Resources 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 a remarkable 311% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Alphamin Resources can keep these trends up, it could have a bright future ahead.

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

Alphamin Resources is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.