Investors Shouldn't Overlook AltynGold's (LON:ALTN) Impressive Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. Speaking of which, we noticed some great changes in AltynGold's (LON:ALTN) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on AltynGold is:

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

0.24 = US$17m ÷ (US$81m - US$9.5m) (Based on the trailing twelve months to June 2021).

Therefore, AltynGold has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 18% earned by companies in a similar industry.

See our latest analysis for AltynGold

In the above chart we have measured AltynGold's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for AltynGold.

What The Trend Of ROCE Can Tell Us

We're delighted to see that AltynGold is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 24% on its capital. And unsurprisingly, like most companies trying to break into the black, AltynGold is utilizing 38% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

Our Take On AltynGold's ROCE

Long story short, we're delighted to see that AltynGold's reinvestment activities have paid off and the company is now profitable. And since the stock has fallen 31% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know more about AltynGold, we've spotted 3 warning signs, and 2 of them don't sit too well with us.

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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.