Returns On Capital At Dynacor Gold Mines (TSE:DNG) Have Stalled
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Dynacor Gold Mines' (TSE:DNG) ROCE trend, we were pretty happy with what we saw.
Return On Capital Employed (ROCE): What is it?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Dynacor Gold Mines:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = US$9.5m ÷ (US$78m - US$8.8m) (Based on the trailing twelve months to March 2021).
So, Dynacor Gold Mines has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 2.9% generated by the Metals and Mining industry.
Check out our latest analysis for Dynacor Gold Mines
Historical performance is a great place to start when researching a stock so above you can see the gauge for Dynacor Gold Mines' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Dynacor Gold Mines, check out these free graphs here.
The Trend Of ROCE
While the current returns on capital are decent, they haven't changed much. The company has employed 33% more capital in the last five years, and the returns on that capital have remained stable at 14%. Since 14% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
What We Can Learn From Dynacor Gold Mines' ROCE
The main thing to remember is that Dynacor Gold Mines has proven its ability to continually reinvest at respectable rates of return. Therefore it's no surprise that shareholders have earned a respectable 51% return if they held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.
On a separate note, we've found 4 warning signs for Dynacor Gold Mines you'll probably want to know about.
While Dynacor Gold Mines 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.
This article by Simply Wall St is general in nature. 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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