Investors Should Be Encouraged By Golden Energy and Resources' (SGX:AUE) Returns On Capital

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we're seeing at Golden Energy and Resources' (SGX:AUE) look very promising so lets take a look.

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 Golden Energy and Resources, this is the formula:

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

0.49 = US$1.7b ÷ (US$4.9b - US$1.4b) (Based on the trailing twelve months to December 2022).

Therefore, Golden Energy and Resources has an ROCE of 49%. That's a fantastic return and not only that, it outpaces the average of 25% earned by companies in a similar industry.

See our latest analysis for Golden Energy and Resources

Historical performance is a great place to start when researching a stock so above you can see the gauge for Golden Energy and Resources' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Golden Energy and Resources, check out these free graphs here.

How Are Returns Trending?

Golden Energy and Resources is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 49%. Basically the business is earning more per dollar of capital invested and in addition to that, 559% more capital is being employed now too. So we're very much inspired by what we're seeing at Golden Energy and Resources thanks to its ability to profitably reinvest capital.

Our Take On Golden Energy and Resources' ROCE

All in all, it's terrific to see that Golden Energy and Resources is reaping the rewards from prior investments and is growing its capital base. And a remarkable 202% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Golden Energy and Resources can keep these trends up, it could have a bright future ahead.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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