We Like These Underlying Return On Capital Trends At AltynGold (LON:ALTN)

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. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at AltynGold (LON:ALTN) so let's look a bit deeper.

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. Analysts use this formula to calculate it for AltynGold:

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

0.13 = US$15m ÷ (US$145m - US$28m) (Based on the trailing twelve months to December 2023).

So, AltynGold has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 8.8% it's much better.

See our latest analysis for AltynGold

Historical performance is a great place to start when researching a stock so above you can see the gauge for AltynGold's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of AltynGold.

How Are Returns Trending?

AltynGold has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 13% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, AltynGold is utilizing 159% 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.

In Conclusion...

Overall, AltynGold gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 124% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if AltynGold can keep these trends up, it could have a bright future ahead.

AltynGold does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

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.

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