U.S. Markets closed

Investors Should Be Encouraged By Freeport-McMoRan's (NYSE:FCX) Returns On Capital

  • Oops!
    Something went wrong.
    Please try again later.
·2 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. Speaking of which, we noticed some great changes in Freeport-McMoRan's (NYSE:FCX) returns on capital, so let's have a look.

What is 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. The formula for this calculation on Freeport-McMoRan is:

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

0.23 = US$9.6b ÷ (US$49b - US$6.5b) (Based on the trailing twelve months to March 2022).

Therefore, Freeport-McMoRan has an ROCE of 23%. In absolute terms that's a very respectable return and compared to the Metals and Mining industry average of 20% it's pretty much on par.

See our latest analysis for Freeport-McMoRan

roce
roce

Above you can see how the current ROCE for Freeport-McMoRan 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 report on analyst forecasts for the company.

How Are Returns Trending?

Freeport-McMoRan is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 23%. The amount of capital employed has increased too, by 34%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Freeport-McMoRan's ROCE

All in all, it's terrific to see that Freeport-McMoRan is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 244% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Freeport-McMoRan does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

Freeport-McMoRan is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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

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.