Returns On Capital Are Showing Encouraging Signs At Antofagasta (LON:ANTO)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Antofagasta's (LON:ANTO) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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)

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

Therefore, 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.

See our latest analysis for Antofagasta

Above you can see how the current ROCE for Antofagasta compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Antofagasta here for free.

So How Is Antofagasta's ROCE Trending?

Investors would be pleased with what's happening at Antofagasta. Over the last five years, returns on capital employed have risen substantially to 19%. The amount of capital employed 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

To sum it up, Antofagasta has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 63% return over the last five years. In light of that, we think it's worth looking further into this stock because if Antofagasta can keep these trends up, it could have a bright future ahead.

Antofagasta does have some risks though, and we've spotted 1 warning sign for Antofagasta that you might be interested in.

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.