DRDGOLD's (NYSE:DRD) Returns On Capital Are Heading Higher

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 DRDGOLD (NYSE:DRD) so let's look a bit deeper.

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. The formula for this calculation on DRDGOLD is:

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

0.18 = R1.2b ÷ (R7.3b - R551m) (Based on the trailing twelve months to December 2022).

Thus, DRDGOLD has an ROCE of 18%. That's a relatively normal return on capital, and it's around the 15% generated by the Metals and Mining industry.

See our latest analysis for DRDGOLD

In the above chart we have measured DRDGOLD's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering DRDGOLD here for free.

The Trend Of ROCE

DRDGOLD is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 18%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 222%. So we're very much inspired by what we're seeing at DRDGOLD thanks to its ability to profitably reinvest capital.

The Key Takeaway

In summary, it's great to see that DRDGOLD can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if DRDGOLD can keep these trends up, it could have a bright future ahead.

If you want to continue researching DRDGOLD, you might be interested to know about the 1 warning sign that our analysis has discovered.

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

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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.