Auplata Mining Group (EPA:ALAMG) Is Experiencing Growth In Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. With that in mind, we've noticed some promising trends at Auplata Mining Group (EPA:ALAMG) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Auplata Mining Group, this is the formula:

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

0.048 = €10m ÷ (€345m - €130m) (Based on the trailing twelve months to June 2022).

So, Auplata Mining Group has an ROCE of 4.8%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 6.9%.

See our latest analysis for Auplata Mining Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Auplata Mining Group's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Auplata Mining Group, check out these free graphs here.

SWOT Analysis for Auplata Mining Group

The Trend Of ROCE

Auplata Mining Group has recently broken into profitability so their prior investments seem to be paying off. About three years ago the company was generating losses but things have turned around because it's now earning 4.8% on its capital. And unsurprisingly, like most companies trying to break into the black, Auplata Mining Group is utilizing 833% more capital than it was three years ago. 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.

One more thing to note, Auplata Mining Group has decreased current liabilities to 38% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

What We Can Learn From Auplata Mining Group's ROCE

Overall, Auplata Mining Group gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. However the stock is down a substantial 99% in the last three years so there could be other areas of the business hurting its prospects. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

One more thing: We've identified 5 warning signs with Auplata Mining Group (at least 4 which shouldn't be ignored) , and understanding these would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.