Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in South Manganese Investment's (HKG:1091) returns on capital, so let's have a look.
What is Return On Capital Employed (ROCE)?
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. To calculate this metric for South Manganese Investment, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) (Total Assets - Current Liabilities)
0.11 = HK$398m (HK$8.9b - HK$5.2b) (Based on the trailing twelve months to June 2021).
So, South Manganese Investment has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 13% generated by the Metals and Mining industry.
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating South Manganese Investment's past further, check out this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For South...
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