Yahoo Finance Victoria Gold (TSE:VGCX) Is Looking To Continue Growing Its Returns On Capital
There are a few key trends to look for if we want to identify the next multi-bagger. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Victoria Gold (TSE:VGCX) 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. To calculate this metric for Victoria Gold, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.088 = CA$79m ÷ (CA$1.0b - CA$125m) (Based on the trailing twelve months to September 2023).
Therefore, Victoria Gold has an ROCE of 8.8%. On its own that's a low return, but compared to the average of 2.9% generated by the Metals and Mining industry, it's much better.
Check out our latest analysis for Victoria Gold
Above you can see how the current ROCE for Victoria Gold compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Victoria Gold.
So How Is Victoria Gold's ROCE Trending?
The fact that Victoria Gold is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 8.8% on its capital. Not only that, but the company is utilizing 159% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
What We Can Learn From Victoria Gold's ROCE
To the delight of most shareholders, Victoria Gold has now broken into profitability. Considering the stock has delivered 21% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
One more thing, we've spotted 2 warning signs facing Victoria Gold that you might find interesting.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.
