What Do The Returns At AltynGold (LON:ALTN) Mean Going Forward?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at AltynGold (LON:ALTN) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the 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)

0.049 = US$3.1m ÷ (US$76m - US$13m) (Based on the trailing twelve months to June 2020).

Therefore, AltynGold has an ROCE of 4.9%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 12%.

Check out our latest analysis for AltynGold

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 want to delve into the historical earnings, revenue and cash flow of AltynGold, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

We're delighted to see that AltynGold is reaping rewards from its investments and has now broken into profitability. While the business is profitable now, it used to be incurring losses on invested capital five years ago. Additionally, the business is utilizing 30% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. AltynGold could be selling under-performing assets since the ROCE is improving.

What We Can Learn From AltynGold's ROCE

From what we've seen above, AltynGold has managed to increase it's returns on capital all the while reducing it's capital base. Astute investors may have an opportunity here because the stock has declined 18% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

AltynGold does have some risks, we noticed 5 warning signs (and 2 which don't sit too well with us) we think you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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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