Here's What's Concerning About Mount Everest Gold Group's (HKG:1815) Returns On Capital

When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. Having said that, after a brief look, Mount Everest Gold Group (HKG:1815) we aren't filled with optimism, but let's investigate further.

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Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Mount Everest Gold Group:

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

0.0055 = CN¥7.0m ÷ (CN¥1.6b - CN¥291m) (Based on the trailing twelve months to December 2024).

Thus, Mount Everest Gold Group has an ROCE of 0.5%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 8.8%.

See our latest analysis for Mount Everest Gold Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Mount Everest Gold Group's ROCE against it's prior returns. If you'd like to look at how Mount Everest Gold Group has performed in the past in other metrics, you can view this free graph of Mount Everest Gold Group's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We are a bit worried about the trend of returns on capital at Mount Everest Gold Group. About five years ago, returns on capital were 1.5%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Mount Everest Gold Group becoming one if things continue as they have.

What We Can Learn From Mount Everest Gold Group's ROCE

In summary, it's unfortunate that Mount Everest Gold Group is generating lower returns from the same amount of capital. Yet despite these poor fundamentals, the stock has gained a huge 245% over the last five years, so investors appear very optimistic. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

On a separate note, we've found 1 warning sign for Mount Everest Gold Group you'll probably want to know about.

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.