Yahoo Finance Returns At Orvana Minerals (TSE:ORV) Are On The Way Up
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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Speaking of which, we noticed some great changes in Orvana Minerals' (TSE:ORV) returns on capital, so let's have a look.
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. Analysts use this formula to calculate it for Orvana Minerals:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.04 = US$3.4m ÷ (US$123m - US$38m) (Based on the trailing twelve months to September 2023).
So, Orvana Minerals has an ROCE of 4.0%. On its own that's a low return, but compared to the average of 2.9% generated by the Metals and Mining industry, it's much better.
See our latest analysis for Orvana Minerals
Historical performance is a great place to start when researching a stock so above you can see the gauge for Orvana Minerals' ROCE against it's prior returns. If you're interested in investigating Orvana Minerals' past further, check out this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
It's great to see that Orvana Minerals has started to generate some pre-tax earnings from prior investments. The company was generating losses five years ago, but now it's turned around, earning 4.0% which is no doubt a relief for some early shareholders. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 23%. Orvana Minerals could be selling under-performing assets since the ROCE is improving.
The Bottom Line On Orvana Minerals' ROCE
In a nutshell, we're pleased to see that Orvana Minerals has been able to generate higher returns from less capital. Considering the stock has delivered 10% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
Like most companies, Orvana Minerals does come with some risks, and we've found 2 warning signs that you should be aware of.
While Orvana Minerals isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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.
