What trends should we look for when we want to identify stocks that can multiply in value over the long term? First, we want to find a proven return on the capital employed (ROCE), which is increasing, and secondly a growing base of the capital employed. Simply put, these types of companies are compound interest machines, meaning that they continually reinvest their profits at ever-higher returns. Speaking of which, we have seen some big changes in Global Development’s Resources (Catalist:V7R) return on investment, so let’s take a look at that.
What is return on capital employed (ROCE)?
For those who don’t know what ROCE is, it measures the amount of pre-tax profit a company can generate with the capital employed in its business. Analysts use this formula to calculate it for Resources Global Development:
Return on capital = earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)
0.23 = S$26 million ÷ (S$145 million – S$33 million) (Based on the last twelve months to June 2024).
So, Resources Global Development has a ROCE of 23%. This is a fantastic return and not only that, it also exceeds the 6.0% average earned by companies in a similar industry.
Check out our latest analysis on global resource development
Historical performance is a good place to start when analyzing a stock. Above you can see Resources Global Development’s ROCE compared to past returns. If you want to see how Resources Global Development has performed on other metrics in the past you can see that here. free Graph of Resources Global Development’s past earnings, revenue and cash flow.
How are returns developing?
Investors should be pleased with developments at Resources Global Development. Over the past five years, the return on capital has increased significantly to 23%. Essentially, the company is earning more per dollar invested, and in addition, it is now employing 205% more capital. This may indicate that there are many opportunities to invest capital internally and at increasingly higher rates – a combination that is common among multi-baggers.
Finally…
A company that can grow its return on capital and consistently reinvest in itself is a sought-after trait, and that’s exactly what Resources Global Development has. And a remarkable total return of 190% over the past three years tells us that investors expect even more good things to come. Still, we think the company deserves a closer look given its promising fundamentals.
And we discovered something else 3 warning signs with regard to global resource development that you may find interesting.
Resources Global Development is not the only stock that offers high returns. To learn more, visit our free List of companies with high returns on equity and solid fundamentals.
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