Yahoo Finance There's Been No Shortage Of Growth Recently For Majestic Gold's (CVE:MJS) Returns On Capital
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Majestic Gold (CVE:MJS) so let's look a bit deeper.
Understanding 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. To calculate this metric for Majestic Gold, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = US$18m ÷ (US$135m - US$35m) (Based on the trailing twelve months to September 2021).
So, Majestic Gold has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 3.3% generated by the Metals and Mining industry.
View our latest analysis for Majestic Gold
Historical performance is a great place to start when researching a stock so above you can see the gauge for Majestic Gold's ROCE against it's prior returns. If you'd like to look at how Majestic Gold has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
So How Is Majestic Gold's ROCE Trending?
The fact that Majestic Gold is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 18% on its capital. Not only that, but the company is utilizing 66% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
What We Can Learn From Majestic Gold's ROCE
To the delight of most shareholders, Majestic Gold has now broken into profitability. Given the stock has declined 22% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.
On a separate note, we've found 2 warning signs for Majestic Gold you'll probably want to know about.
While Majestic Gold isn't earning the highest return, check out this free list of companies that are 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.
