The Return Trends At Vulcan Minerals (CVE:VUL) 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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. With that in mind, we've noticed some promising trends at Vulcan Minerals (CVE:VUL) so let's look a bit deeper.

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

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

0.0058 = CA$275k ÷ (CA$48m - CA$138k) (Based on the trailing twelve months to December 2022).

Therefore, Vulcan Minerals has an ROCE of 0.6%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 2.1%.

View our latest analysis for Vulcan Minerals

Historical performance is a great place to start when researching a stock so above you can see the gauge for Vulcan Minerals' ROCE against it's prior returns. If you'd like to look at how Vulcan Minerals has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Vulcan Minerals' ROCE Trend?

We're delighted to see that Vulcan Minerals is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 0.6% on its capital. In addition to that, Vulcan Minerals is employing 1,294% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line

In summary, it's great to see that Vulcan Minerals has managed to break into profitability and is continuing to reinvest in its business. And a remarkable 254% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Vulcan Minerals does have some risks though, and we've spotted 3 warning signs for Vulcan Minerals that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.