Yahoo Finance Navarre Minerals (ASX:NML) Shareholders Will Want The ROCE Trajectory To Continue
What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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 Navarre Minerals (ASX:NML) 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 Navarre Minerals:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.049 = AU$6.9m ÷ (AU$159m - AU$20m) (Based on the trailing twelve months to June 2022).
Thus, Navarre Minerals has an ROCE of 4.9%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 10.0%.
View our latest analysis for Navarre Minerals
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Navarre Minerals' past further, check out this free graph of past earnings, revenue and cash flow.
The Trend Of ROCE
We're delighted to see that Navarre Minerals is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 4.9% on its capital. And unsurprisingly, like most companies trying to break into the black, Navarre Minerals is utilizing 1,889% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
The Key Takeaway
Long story short, we're delighted to see that Navarre Minerals' reinvestment activities have paid off and the company is now profitable. Given the stock has declined 58% 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.
One final note, you should learn about the 3 warning signs we've spotted with Navarre Minerals (including 1 which shouldn't be ignored) .
While Navarre 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.
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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.
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