What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Wesdome Gold Mines (TSE:WDO) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Wesdome Gold Mines is:

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

0.11 = CA$64m ÷ (CA$644m - CA$64m) (Based on the trailing twelve months to June 2024).

Therefore, Wesdome Gold Mines has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 3.3% it's much better.

Check out our latest analysis for Wesdome Gold Mines

Above you can see how the current ROCE for Wesdome Gold Mines compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Wesdome Gold Mines .

The Trend Of ROCE

On the surface, the trend of ROCE at Wesdome Gold Mines doesn't inspire confidence. Around five years ago the returns on capital were 17%, but since then they've fallen to 11%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On Wesdome Gold Mines' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Wesdome Gold Mines. And long term investors must be optimistic going forward because the stock has returned a huge 120% to shareholders in the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

On a final note, we've found 1 warning sign for Wesdome Gold Mines that we think you should be aware of.