Goldstone Resources (LON:GRL) Shareholders Will Want The ROCE Trajectory To Continue

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Goldstone Resources (LON:GRL) looks quite promising in regards to its trends of return on capital.

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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 Goldstone Resources is:

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

0.081 = US$1.4m ÷ (US$30m - US$12m) (Based on the trailing twelve months to June 2025).

Thus, Goldstone Resources has an ROCE of 8.1%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 12%.

View our latest analysis for Goldstone Resources

Historical performance is a great place to start when researching a stock so above you can see the gauge for Goldstone Resources' ROCE against it's prior returns. If you're interested in investigating Goldstone Resources' past further, check out this free graph covering Goldstone Resources' past earnings, revenue and cash flow.

How Are Returns Trending?

The fact that Goldstone Resources is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 8.1% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Goldstone Resources is utilizing 46% more capital than it was five 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 side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 40% of the business, which is more than it was five years ago. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

The Bottom Line On Goldstone Resources' ROCE

In summary, it's great to see that Goldstone Resources 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 94% in the last five years. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

If you'd like to know about the risks facing Goldstone Resources, we've discovered 5 warning signs that you should be aware of.

While Goldstone Resources isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.