The Return Trends At Minera Frisco. de (BMV:MFRISCOA-1) Look Promising

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 Minera Frisco. de (BMV:MFRISCOA-1) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed 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$640m ÷ (Mex$32b - Mex$21b) (Based on the trailing twelve months to June 2024).

Therefore, Minera Frisco. de has an ROCE of 6.1%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 9.7%.

See our latest analysis for Minera Frisco. de

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

What Can We Tell From Minera Frisco. de's ROCE Trend?

Like most people, we're pleased that Minera Frisco. de is now generating some pretax earnings. While the business is profitable now, it used to be incurring losses on invested capital five years ago. In regards to capital employed, Minera Frisco. de is using 59% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. Minera Frisco. de could be selling under-performing assets since the ROCE is improving.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 67% of its operations, which isn't ideal. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

Our Take On Minera Frisco. de's ROCE

In summary, it's great to see that Minera Frisco. de has been able to turn things around and earn higher returns on lower amounts of capital. Considering the stock has delivered 13% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

One more thing, we've spotted 1 warning sign facing Minera Frisco. de that you might find interesting.

While Minera Frisco. de isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.