Investors Will Want Freeport-McMoRan’s (NYSE:FCX) Growth In ROCE To Persist
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 when we looked at Freeport-McMoRan (NYSE:FCX[1]) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Freeport-McMoRan, this is the formula: Return on Capital Employed = Earnings Before Interest and Tax (EBIT) / (Total Assets - Current Liabilities)
0.14 = US£6.9b / (US£55b - US£6.1b) (Based on the trailing twelve months to June 2024). Thus, Freeport-McMoRan has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 9.9% generated by the Metals and Mining industry. See our latest analysis for Freeport-McMoRan[2]
NYSE:FCX Return on Capital Employed October 21st 2024
In the above chart we have measured Freeport-McMoRan's 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 free analyst report for Freeport-McMoRan[3] .
What Does the ROCE Trend For Freeport-McMoRan Tell Us?
The trends we've noticed at Freeport-McMoRan are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 14%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 28%.
This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Key Takeaway
All in all, it's terrific to see that Freeport-McMoRan is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 397% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.
On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for FCX on our platform[4] that is definitely worth checking out. While Freeport-McMoRan isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.[5]
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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.[7]
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.
References
- ^ NYSE:FCX (simplywall.st)
- ^ See our latest analysis for Freeport-McMoRan (simplywall.st)
- ^ analyst report for Freeport-McMoRan (simplywall.st)
- ^ FREE intrinsic value estimation for FCX on our platform (simplywall.st)
- ^ list of companies that are earning high returns on equity with solid balance sheets. (simplywall.st)
- ^ Explore Now for Free (simplywall.st)
- ^ Get in touch (investor-research.typeform.com)