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Under The Bonnet, Mandalay Resources' (TSE:MND) Returns Look Impressive

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Mandalay Resources (TSE:MND) we really liked what we saw.

What is 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. To calculate this metric for Mandalay Resources, this is the formula:

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

0.27 = US$60m ÷ (US$301m - US$77m) (Based on the trailing twelve months to September 2021).

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Thus, Mandalay Resources has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 4.2%.

See our latest analysis for Mandalay Resources

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In the above chart we have measured Mandalay Resources' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Mandalay Resources.

So How Is Mandalay Resources' ROCE Trending?

You'd find it hard not to be impressed with the ROCE trend at Mandalay Resources. We found that the returns on capital employed over the last five years have risen by 240%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Mandalay Resources appears to been achieving more with less, since the business is using 25% less capital to run its operation. Mandalay Resources may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

In Conclusion...

From what we've seen above, Mandalay Resources has managed to increase it's returns on capital all the while reducing it's capital base. And since the stock has fallen 65% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we found 2 warning signs for Mandalay Resources (1 can't be ignored) you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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.

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