Mandalay Resources (TSE:MND) Is Looking To Continue Growing Its Returns On Capital
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Mandalay Resources (TSE:MND) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
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 Mandalay Resources, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.094 = US$22m ÷ (US$274m - US$37m) (Based on the trailing twelve months to September 2023).
Thus, Mandalay Resources has an ROCE of 9.4%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 2.6%.
View our latest analysis for Mandalay Resources
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, you can check out the forecasts from the analysts covering Mandalay Resources here for free.
The Trend Of ROCE
Shareholders will be relieved that Mandalay Resources has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 9.4%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.
The Bottom Line
To sum it up, Mandalay Resources is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has only returned 11% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.
On a separate note, we've found 2 warning signs for Mandalay Resources you'll probably want to know about.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.
