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Returns On Capital Are Showing Encouraging Signs At Altius Minerals (TSE:ALS)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Altius Minerals (TSE:ALS) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Altius Minerals is:

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

0.067 = CA$54m ÷ (CA$823m - CA$14m) (Based on the trailing twelve months to March 2023).

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Therefore, Altius Minerals has an ROCE of 6.7%. On its own that's a low return, but compared to the average of 2.2% generated by the Metals and Mining industry, it's much better.

View our latest analysis for Altius Minerals

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Above you can see how the current ROCE for Altius Minerals compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Altius Minerals here for free.

How Are Returns Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 6.7%. The amount of capital employed has increased too, by 57%. So we're very much inspired by what we're seeing at Altius Minerals thanks to its ability to profitably reinvest capital.

What We Can Learn From Altius Minerals' ROCE

In summary, it's great to see that Altius Minerals 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 investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 65% return over the last five years. In light of that, we think it's worth looking further into this stock because if Altius Minerals can keep these trends up, it could have a bright future ahead.

Altius Minerals does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is significant...

While Altius Minerals 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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