First Quantum Minerals (TSE:FM) Is Experiencing Growth In Returns On Capital




  • In Business
  • 2022-09-22 17:22:33Z
  • By Simply Wall St.
 

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at First Quantum Minerals (TSE:FM) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for First Quantum Minerals:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.12 = US$2.7b ÷ (US$25b - US$1.9b) (Based on the trailing twelve months to June 2022).

So, First Quantum Minerals has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 4.0% generated by the Metals and Mining industry.

See our latest analysis for First Quantum Minerals

In the above chart we have measured First Quantum Minerals' 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 First Quantum Minerals here for free.

How Are Returns Trending?

First Quantum Minerals is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 12%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 32%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On First Quantum Minerals' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what First Quantum Minerals has. And with a respectable 70% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching First Quantum Minerals, you might be interested to know about the 1 warning sign that our analysis has discovered.

While First Quantum Minerals 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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