Auplata Mining Group (EPA:ALAMG) Is Looking To Continue Growing Its Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Auplata Mining Group (EPA:ALAMG) so let's look a bit deeper.

What is 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. The formula for this calculation on Auplata Mining Group is:

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

0.0067 = €1.7m ÷ (€346m - €99m) (Based on the trailing twelve months to June 2021).

So, Auplata Mining Group has an ROCE of 0.7%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 13%.

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'd like to look at how Auplata Mining Group has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Auplata Mining Group has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making two years ago but is is now generating 0.7% on its capital. And unsurprisingly, like most companies trying to break into the black, Auplata Mining Group is utilizing 968% more capital than it was two 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.

On a related note, the company's ratio of current liabilities to total assets has decreased to 29%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Auplata Mining Group has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

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. Although the company may be facing some issues elsewhere since the stock has plunged 78% in the last year. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

On a final note, we've found 3 warning signs for Auplata Mining Group that we think you should be aware of.

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.

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.

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