Yahoo Finance Returns Are Gaining Momentum At DRDGOLD (NYSE:DRD)
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. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, DRDGOLD (NYSE:DRD) looks quite promising in regards to its trends of return on capital.
Understanding Return On Capital Employed (ROCE)
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 DRDGOLD is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = R1.1b ÷ (R6.6b - R554m) (Based on the trailing twelve months to December 2021).
Therefore, DRDGOLD has an ROCE of 18%. By itself that's a normal return on capital and it's in line with the industry's average returns of 18%.
See our latest analysis for DRDGOLD
Above you can see how the current ROCE for DRDGOLD compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for DRDGOLD.
What The Trend Of ROCE Can Tell Us
We like the trends that we're seeing from DRDGOLD. The data shows that returns on capital have increased substantially over the last five years to 18%. The amount of capital employed has increased too, by 190%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
What We Can Learn From DRDGOLD's ROCE
All in all, it's terrific to see that DRDGOLD is reaping the rewards from prior investments and is growing its capital base. And a remarkable 127% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
DRDGOLD does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is a bit concerning...
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.
