If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at DRDGOLD (NYSE:DRD) so let's look a bit deeper.

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. Analysts use this formula to calculate it for DRDGOLD:

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

0.18 = R1.1b ÷ (R6.6b - R554m) (Based on the trailing twelve months to December 2021).

Therefore, DRDGOLD has an ROCE of 18%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Metals and Mining industry average of 20%.

See our latest analysis for DRDGOLD

Above you can see how the current ROCE for DRDGOLD 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 DRDGOLD.

The Trend Of ROCE

We like the trends that we're seeing from DRDGOLD. The data shows that returns on capital have increased substantially over the last five years to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 190% more capital is being employed now too. So we're very much inspired by what we're seeing at DRDGOLD thanks to its ability to profitably reinvest capital.

The Bottom Line On DRDGOLD's ROCE

All in all, it's terrific to see that DRDGOLD is reaping the rewards from prior investments and is growing its capital base. And a remarkable 163% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

DRDGOLD does have some risks, we noticed 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

While DRDGOLD 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.