There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Goldmoney's (TSE:XAU) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Goldmoney is:

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

0.094 = CA$17m ÷ (CA$185m - CA$8.0m) (Based on the trailing twelve months to March 2024).

So, Goldmoney has an ROCE of 9.4%. On its own, that's a low figure but it's around the 11% average generated by the Specialty Retail industry.

See our latest analysis for Goldmoney

Historical performance is a great place to start when researching a stock so above you can see the gauge for Goldmoney's ROCE against it's prior returns. If you'd like to look at how Goldmoney has performed in the past in other metrics, you can view this free graph of Goldmoney's past earnings, revenue and cash flow.

The Trend Of ROCE

Goldmoney has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 9.4%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line On Goldmoney's ROCE

As discussed above, Goldmoney appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Given the stock has declined 29% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.