We Like Serabi Gold's (LON:SRB) Returns And Here's How They're Trending

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Serabi Gold (LON:SRB) we really liked what we saw.

Understanding 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. Analysts use this formula to calculate it for Serabi Gold:

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

0.21 = US$13m ÷ (US$77m - US$16m) (Based on the trailing twelve months to September 2020).

So, Serabi Gold has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

View our latest analysis for Serabi Gold

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

So How Is Serabi Gold's ROCE Trending?

Investors would be pleased with what's happening at Serabi Gold. The data shows that returns on capital have increased substantially over the last five years to 21%. Basically the business is earning more per dollar of capital invested and in addition to that, 20% more capital is being employed now too. So we're very much inspired by what we're seeing at Serabi Gold thanks to its ability to profitably reinvest capital.

Our Take On Serabi Gold's ROCE

To sum it up, Serabi Gold has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

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

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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This article by Simply Wall St is general in nature. 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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