Aya Gold & Silver (TSE:AYA) Might Have The Makings Of A Multi-Bagger

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Aya Gold & Silver (TSE:AYA) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Aya Gold & Silver:

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

0.0058 = US$2.1m ÷ (US$396m - US$37m) (Based on the trailing twelve months to March 2024).

So, Aya Gold & Silver has an ROCE of 0.6%. Even though it's in line with the industry average of 1.4%, it's still a low return by itself.

Check out our latest analysis for Aya Gold & Silver

roce

Above you can see how the current ROCE for Aya Gold & Silver compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Aya Gold & Silver .

The Trend Of ROCE

We're delighted to see that Aya Gold & Silver is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 0.6% which is a sight for sore eyes. Not only that, but the company is utilizing 755% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On Aya Gold & Silver's ROCE

Long story short, we're delighted to see that Aya Gold & Silver's reinvestment activities have paid off and the company is now profitable. And a remarkable 633% 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.

One more thing: We've identified 3 warning signs with Aya Gold & Silver (at least 1 which shouldn't be ignored) , and understanding them would certainly be useful.

While Aya Gold & Silver 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.

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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.

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