Yahoo Finance Returns At Eldorado Gold (TSE:ELD) Are On The Way Up
To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Eldorado Gold (TSE:ELD) looks quite promising in regards to its trends of return on capital.
Understanding 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. The formula for this calculation on Eldorado Gold is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.041 = US$198m ÷ (US$5.1b - US$259m) (Based on the trailing twelve months to March 2024).
Therefore, Eldorado Gold has an ROCE of 4.1%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 1.6%.
View our latest analysis for Eldorado Gold
In the above chart we have measured Eldorado Gold's 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 Eldorado Gold for free.
What Does the ROCE Trend For Eldorado Gold Tell Us?
Shareholders will be relieved that Eldorado Gold has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 4.1% on its capital. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.
In Conclusion...
In summary, we're delighted to see that Eldorado Gold has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Eldorado Gold can keep these trends up, it could have a bright future ahead.
If you'd like to know about the risks facing Eldorado Gold, we've discovered 2 warning signs that you should be aware of.
While Eldorado Gold 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.
