Mining minerals

First Quantum Minerals (TSE:FM) does what it takes to multiply its share price

If we want to find a stock that could multiply over the long term, what are the underlying trends we should be looking for? Ideally, a business will show two trends; first growth to return to on capital employed (ROCE) and on the other hand, growth amount capital employed. Ultimately, this demonstrates that this is a company that reinvests its earnings at increasing rates of return. Speaking of which, we’ve noticed big changes in First Quantum Minerals’ (TSE:FM) returns to capital, so let’s take a look.

Understanding return on capital employed (ROCE)

If you’ve never worked with ROCE before, it measures the “yield” (pre-tax profit) a company generates from the capital used in its business. To calculate this metric for First Quantum Minerals, here is the formula:

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

0.10 = $2.4 billion ÷ ($25 billion – $1.7 billion) (Based on the last twelve months to December 2021).

So, First Quantum Minerals has a ROCE of 10%. In absolute terms, that’s a decent return, but compared to the metals and mining industry average of 4.4%, it’s much better.

Check out our latest analysis for First Quantum Minerals

TSX:FM Return on Capital Employed February 27, 2022

Above, you can see how First Quantum Minerals’ current ROCE compares to its past returns on capital, but there’s little you can say about the past. If you wish, you can view analyst forecasts covering First Quantum Minerals here for free.

What is the return trend?

Investors would be delighted with what is happening at First Quantum Minerals. Figures show that over the past five years, returns generated on capital employed have increased significantly to 10%. Basically, the business earns more per dollar of invested capital and on top of that, 37% more capital is also utilized now. So we’re very inspired by what we’re seeing at First Quantum Minerals with its ability to reinvest capital profitably.

Our perspective on First Quantum Minerals ROCE

Overall, it is great to see First Quantum Minerals reaping the rewards of past investments and increasing its capital base. And a remarkable total return of 142% over the past five years tells us that investors expect more good things to come. That being said, we still think the promising fundamentals mean the company merits further due diligence.

One more thing we spotted 2 warning signs deal with First Quantum Minerals that might be of interest to you.

Although First Quantum Minerals does not currently generate the highest returns, we have compiled a list of companies that currently generate over 25% return on equity. look at this free list here.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.