Corsa Coal (CVE:CSO) Might Have The Makings Of A Multi-Bagger
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Corsa Coal's (CVE:CSO) returns on capital, so let's have a look.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Corsa Coal, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = US$22m ÷ (US$191m - US$26m) (Based on the trailing twelve months to December 2023).
Thus, Corsa Coal has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 1.9% it's much better.
Check out our latest analysis for Corsa Coal
Historical performance is a great place to start when researching a stock so above you can see the gauge for Corsa Coal's ROCE against it's prior returns. If you'd like to look at how Corsa Coal has performed in the past in other metrics, you can view this free graph of Corsa Coal's past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
You'd find it hard not to be impressed with the ROCE trend at Corsa Coal. We found that the returns on capital employed over the last five years have risen by 349%. The company is now earning US$0.1 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 29% less than it was five years ago, which can be indicative of a business that's improving its efficiency. Corsa Coal may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.
Our Take On Corsa Coal's ROCE
In summary, it's great to see that Corsa Coal has been able to turn things around and earn higher returns on lower amounts of capital. Astute investors may have an opportunity here because the stock has declined 60% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.
If you'd like to know about the risks facing Corsa Coal, we've discovered 1 warning sign that you should be aware of.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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.
