Many Would Be Envious Of Kumba Iron Ore's (JSE:KIO) Excellent Returns On Capital

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. That's why when we briefly looked at Kumba Iron Ore's (JSE:KIO) ROCE trend, we were very happy with what we saw.

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. To calculate this metric for Kumba Iron Ore, this is the formula:

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

0.43 = R36b ÷ (R93b - R9.8b) (Based on the trailing twelve months to June 2024).

So, Kumba Iron Ore has an ROCE of 43%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 12%.

See our latest analysis for Kumba Iron Ore

Above you can see how the current ROCE for Kumba Iron Ore compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Kumba Iron Ore .

How Are Returns Trending?

It's hard not to be impressed by Kumba Iron Ore's returns on capital. Over the past five years, ROCE has remained relatively flat at around 43% and the business has deployed 30% more capital into its operations. Now considering ROCE is an attractive 43%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Kumba Iron Ore can keep this up, we'd be very optimistic about its future.

In Conclusion...

Kumba Iron Ore has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And the stock has followed suit returning a meaningful 74% to shareholders over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you want to know some of the risks facing Kumba Iron Ore we've found 2 warning signs (1 is concerning!) that you should be aware of before investing here.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.