There's Been No Shortage Of Growth Recently For Luca Mining's (CVE:LUCA) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. 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 Luca Mining (CVE:LUCA) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

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 Luca Mining, this is the formula:

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

0.083 = CA$6.9m ÷ (CA$132m - CA$50m) (Based on the trailing twelve months to September 2022).

So, Luca Mining has an ROCE of 8.3%. On its own that's a low return, but compared to the average of 1.5% generated by the Metals and Mining industry, it's much better.

See our latest analysis for Luca Mining

In the above chart we have measured Luca Mining's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Luca Mining.

So How Is Luca Mining's ROCE Trending?

Like most people, we're pleased that Luca Mining is now generating some pretax earnings. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 8.3% on their capital employed. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 46%. This could potentially mean that the company is selling some of its assets.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 38% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

Our Take On Luca Mining's ROCE

In a nutshell, we're pleased to see that Luca Mining has been able to generate higher returns from less capital. Although the company may be facing some issues elsewhere since the stock has plunged 92% in the last five years. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

If you'd like to know more about Luca Mining, we've spotted 4 warning signs, and 2 of them shouldn't be ignored.

While Luca Mining 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.