Yahoo Finance Mountain Province Diamonds (TSE:MPVD) Shareholders Will Want The ROCE Trajectory To Continue
To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Mountain Province Diamonds' (TSE:MPVD) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Mountain Province Diamonds, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.099 = CA$79m ÷ (CA$857m - CA$63m) (Based on the trailing twelve months to December 2023).
Thus, Mountain Province Diamonds has an ROCE of 9.9%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 1.3%.
View our latest analysis for Mountain Province Diamonds
Historical performance is a great place to start when researching a stock so above you can see the gauge for Mountain Province Diamonds' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Mountain Province Diamonds.
The Trend Of ROCE
Mountain Province Diamonds is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 60% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.
Our Take On Mountain Province Diamonds' ROCE
To bring it all together, Mountain Province Diamonds has done well to increase the returns it's generating from its capital employed. However the stock is down a substantial 84% in the last five years so there could be other areas of the business hurting its prospects. Still, it's worth doing some further research to see if the trends will continue into the future.
On a separate note, we've found 1 warning sign for Mountain Province Diamonds you'll probably want to know about.
While Mountain Province Diamonds may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.
