Minera Frisco. de (BMV:MFRISCOA-1) Might Have The Makings Of A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 looked at Minera Frisco. de (BMV:MFRISCOA-1) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

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. To calculate this metric for Minera Frisco. de, this is the formula:

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

0.061 = Mex$2.0b ÷ (Mex$41b - Mex$8.8b) (Based on the trailing twelve months to March 2022).

So, Minera Frisco. de has an ROCE of 6.1%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 27%.

Check out our latest analysis for Minera Frisco. de

Above you can see how the current ROCE for Minera Frisco. de compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Minera Frisco. de.

What The Trend Of ROCE Can Tell Us

Minera Frisco. de is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 61% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From Minera Frisco. de's ROCE

To sum it up, Minera Frisco. de is collecting higher returns from the same amount of capital, and that's impressive. Although the company may be facing some issues elsewhere since the stock has plunged 73% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.

Minera Frisco. de does have some risks, we noticed 3 warning signs (and 2 which are potentially serious) we think you should know about.

While Minera Frisco. de may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.