Yahoo Finance Griffin Mining (LON:GFM) Will Want To Turn Around Its Return Trends
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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Griffin Mining (LON:GFM) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Return On Capital Employed (ROCE): What Is It?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Griffin Mining is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.086 = US$24m ÷ (US$321m - US$44m) (Based on the trailing twelve months to December 2023).
Thus, Griffin Mining has an ROCE of 8.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.8%.
See our latest analysis for Griffin Mining
In the above chart we have measured Griffin Mining's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Griffin Mining .
What Does the ROCE Trend For Griffin Mining Tell Us?
When we looked at the ROCE trend at Griffin Mining, we didn't gain much confidence. To be more specific, ROCE has fallen from 16% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.
What We Can Learn From Griffin Mining's ROCE
In summary, despite lower returns in the short term, we're encouraged to see that Griffin Mining is reinvesting for growth and has higher sales as a result. And the stock has followed suit returning a meaningful 55% to shareholders over the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.
One more thing, we've spotted 1 warning sign facing Griffin Mining that you might find interesting.
While Griffin Mining isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
