The Trend Of High Returns At Majestic Gold (CVE:MJS) Has Us Very Interested

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. So when we looked at the ROCE trend of Majestic Gold (CVE:MJS) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Majestic Gold is:

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

0.21 = US$23m ÷ (US$135m - US$25m) (Based on the trailing twelve months to March 2022).

So, Majestic Gold has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 2.6% earned by companies in a similar industry.

Check out our latest analysis for Majestic Gold

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 want to delve into the historical earnings, revenue and cash flow of Majestic Gold, check out these free graphs here.

The Trend Of ROCE

Majestic Gold is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 21%. The amount of capital employed has increased too, by 57%. So we're very much inspired by what we're seeing at Majestic Gold thanks to its ability to profitably reinvest capital.

One more thing to note, Majestic Gold has decreased current liabilities to 19% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Majestic Gold has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From Majestic Gold's ROCE

All in all, it's terrific to see that Majestic Gold is reaping the rewards from prior investments and is growing its capital base. Given the stock has declined 23% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a separate note, we've found 2 warning signs for Majestic Gold you'll probably want to know about.

Majestic Gold 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.