If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. So on that note, Auplata Mining Group (EPA:ALAMG) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What is it?
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).
Thus, Auplata Mining Group has an ROCE of 0.7%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 13%.
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.
So How Is Auplata Mining Group's ROCE Trending?
Auplata Mining Group has recently broken into profitability so their prior investments seem to be paying off. About two years ago the company was generating losses but things have turned around because it's now earning 0.7% on its capital. In addition to that, Auplata Mining Group is employing 968% more capital than previously which is expected of a company that's trying to break into profitability. 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. So this improvement in ROCE has come from the business' underlying economics, which is great to see.
The Bottom Line
In summary, it's great to see that Auplata Mining Group has managed to break into profitability and is continuing to reinvest in its business. Although the company may be facing some issues elsewhere since the stock has plunged 97% in the last three years. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.
One more thing: We've identified 3 warning signs with Auplata Mining Group (at least 2 which make us uncomfortable) , and understanding these would certainly be useful.
While Auplata Mining Group 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.