Antofagasta (LON:ANTO) Has More To Do To Multiply In Value Going Forward

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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, when we ran our eye over Antofagasta's (LON:ANTO) trend of ROCE, we liked what we saw.

What Is 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 Antofagasta is:

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

0.10 = US$1.8b ÷ (US$20b - US$2.2b) (Based on the trailing twelve months to December 2023).

Therefore, Antofagasta has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 7.8% it's much better.

View our latest analysis for Antofagasta

In the above chart we have measured Antofagasta's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Antofagasta .

How Are Returns Trending?

While the returns on capital are good, they haven't moved much. The company has consistently earned 10% for the last five years, and the capital employed within the business has risen 37% in that time. 10% is a pretty standard return, and it provides some comfort knowing that Antofagasta has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

What We Can Learn From Antofagasta's ROCE

To sum it up, Antofagasta has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 144% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Like most companies, Antofagasta does come with some risks, and we've found 1 warning sign that you should be aware of.

While Antofagasta 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.