Nexa Resources' (NYSE:NEXA) Returns On Capital Are Heading Higher

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. Speaking of which, we noticed some great changes in Nexa Resources' (NYSE:NEXA) returns on capital, so let's have a look.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Nexa Resources is:

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

0.044 = US$164m ÷ (US$4.8b - US$1.1b) (Based on the trailing twelve months to September 2024).

Therefore, Nexa Resources has an ROCE of 4.4%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 10%.

View our latest analysis for Nexa Resources

In the above chart we have measured Nexa Resources' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Nexa Resources .

What Can We Tell From Nexa Resources' ROCE Trend?

While the ROCE is still rather low for Nexa Resources, we're glad to see it heading in the right direction. We found that the returns on capital employed over the last five years have risen by 86%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Nexa Resources appears to been achieving more with less, since the business is using 22% less capital to run its operation. Nexa Resources may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

What We Can Learn From Nexa Resources' ROCE

In a nutshell, we're pleased to see that Nexa Resources has been able to generate higher returns from less capital. Given the stock has declined 12% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a separate note, we've found 1 warning sign for Nexa Resources 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.