Returns At Vulcan Minerals (CVE:VUL) Are On The Way Up

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. So when we looked at Vulcan Minerals (CVE:VUL) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Vulcan Minerals:

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

0.0036 = CA$174k ÷ (CA$48m - CA$124k) (Based on the trailing twelve months to March 2023).

Therefore, Vulcan Minerals has an ROCE of 0.4%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 3.5%.

See our latest analysis for Vulcan Minerals

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 Vulcan Minerals' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Vulcan Minerals Tell Us?

The fact that Vulcan Minerals 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 0.4% on its capital. And unsurprisingly, like most companies trying to break into the black, Vulcan Minerals is utilizing 1,394% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

What We Can Learn From Vulcan Minerals' ROCE

Long story short, we're delighted to see that Vulcan Minerals' reinvestment activities have paid off and the company is now profitable. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Vulcan Minerals can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Vulcan Minerals, we've spotted 4 warning signs, and 1 of them can't be ignored.

While Vulcan Minerals 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.