Investors Will Want AngloGold Ashanti's (NYSE:AU) Growth In ROCE To Persist

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 AngloGold Ashanti (NYSE:AU) so let's look a bit deeper.

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. The formula for this calculation on AngloGold Ashanti is:

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

0.12 = US$863m ÷ (US$8.4b - US$1.2b) (Based on the trailing twelve months to June 2024).

Therefore, AngloGold Ashanti has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 9.9% generated by the Metals and Mining industry.

View our latest analysis for AngloGold Ashanti

Above you can see how the current ROCE for AngloGold Ashanti 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 analyst report for AngloGold Ashanti .

What Does the ROCE Trend For AngloGold Ashanti Tell Us?

We like the trends that we're seeing from AngloGold Ashanti. The data shows that returns on capital have increased substantially over the last five years to 12%. The amount of capital employed has increased too, by 30%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

All in all, it's terrific to see that AngloGold Ashanti is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 44% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if AngloGold Ashanti can keep these trends up, it could have a bright future ahead.

Like most companies, AngloGold Ashanti does come with some risks, and we've found 2 warning signs 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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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.