If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So on that note, China Gold International Resources (TSE:CGG) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

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 China Gold International Resources:

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

0.0039 = US$10m ÷ (US$3.0b - US$409m) (Based on the trailing twelve months to September 2024).

Thus, China Gold International Resources has an ROCE of 0.4%.  Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 3.4%.

Check out our latest analysis for China Gold International Resources TSX:CGG Return on Capital Employed November 17th 2024

In the above chart we have measured China Gold International Resources' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our freeanalyst report for China Gold International Resources .

What Does the ROCE Trend For China Gold International Resources Tell Us?

While there are companies with higher returns on capital out there, we still find the trend at China Gold International Resources promising. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 38% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

One more thing to note, China Gold International Resources has decreased current liabilities to 14% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that China Gold International Resources has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Story Continues

Our Take On China Gold International Resources' ROCE

To bring it all together, China Gold International Resources has done well to increase the returns it's generating from its capital employed. And a remarkable 636% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for CGG on our platform that is definitely worth checking out.

While China Gold International Resources 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 freelist here.

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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.

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