If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at DRDGOLD (NYSE:DRD) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed 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 = R1.6b ÷ (R9.5b - R954m) (Based on the trailing twelve months to June 2024).

Thus, DRDGOLD has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 10% it's much better.

In the above chart we have measured DRDGOLD's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for DRDGOLD .

What Does the ROCE Trend For DRDGOLD Tell Us?

The trends we've noticed at DRDGOLD are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. 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 136%. 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. Since the stock has returned a staggering 230% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

DRDGOLD does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those can't be ignored...

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.