The Return Trends At Auplata Mining Group (EPA:ALAMG) Look Promising

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Auplata Mining Group's (EPA:ALAMG) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.076 = €16m ÷ (€329m - €118m) (Based on the trailing twelve months to June 2023).

So, Auplata Mining Group has an ROCE of 7.6%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 10%.

Check out our latest analysis for Auplata Mining Group

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 Auplata Mining Group's past further, check out this free graph covering Auplata Mining Group's past earnings, revenue and cash flow.

What Does the ROCE Trend For Auplata Mining Group Tell Us?

The fact that Auplata Mining Group is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses four years ago, but now it's earning 7.6% which is a sight for sore eyes. Not only that, but the company is utilizing 810% more capital than before, but that's to be expected from a company 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.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 36%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

What We Can Learn From Auplata Mining Group's ROCE

Long story short, we're delighted to see that Auplata Mining Group's reinvestment activities have paid off and the company is now profitable. And since the stock has dived 100% over the last five years, there may be other factors affecting the company's prospects. Still, it's worth doing some further research to see if the trends will continue into the future.

On a separate note, we've found 4 warning signs for Auplata Mining Group you'll probably want to know about.

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.