Kingsrose Mining (ASX:KRM) Knows How To Allocate Capital Effectively
Simply Wall St
Mon, November 2, 2020, 1:21 PM GMT+10:30·3 mins read
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 Kingsrose Mining's(ASX:KRM) returns on capital, so let's have a look. What is Return On Capital Employed (ROCE)?
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 Kingsrose Mining:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.38 = AU$22m ÷ (AU$60m - AU$3.1m) (Based on the trailing twelve months to June 2020).
So, Kingsrose Mining has an ROCE of 38%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 9.6%.
