Antofagasta (LON:ANTO) Shareholders Will Want The ROCE Trajectory To Continue

By
Simply Wall St
Published
November 07, 2021
LSE:ANTO
Source: Shutterstock

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. With that in mind, we've noticed some promising trends at Antofagasta (LON:ANTO) so let's look a bit deeper.

Understanding 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. To calculate this metric for Antofagasta, this is the formula:

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

0.19 = US$2.9b ÷ (US$17b - US$2.0b) (Based on the trailing twelve months to June 2021).

So, Antofagasta has an ROCE of 19%. That's a relatively normal return on capital, and it's around the 18% generated by the Metals and Mining industry.

View our latest analysis for Antofagasta

roce
LSE:ANTO Return on Capital Employed November 8th 2021

In the above chart we have measured Antofagasta'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 Antofagasta.

How Are Returns Trending?

Antofagasta is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 19%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 21%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Antofagasta's ROCE

In summary, it's great to see that Antofagasta can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 123% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know about the risks facing Antofagasta, we've discovered 1 warning sign that you should be aware of.

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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