What Can We Make Of Torex Gold Resources Inc.’s (TSE:TXG) High Return On Capital?
Today we'll look at Torex Gold Resources Inc. (TSE:TXG) and reflect on its potential as an investment. In particular, we'll consider its Return On Capital Employed (ROCE), as that can give us insight into how profitably the company is able to employ capital in its business.
First, we'll go over how we calculate ROCE. Next, we'll compare it to others in its industry. Then we'll determine how its current liabilities are affecting its ROCE.
Understanding Return On Capital Employed (ROCE)
ROCE measures the amount of pre-tax profits a company can generate from the capital employed in its business. All else being equal, a better business will have a higher ROCE. In brief, it is a useful tool, but it is not without drawbacks. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since 'No two businesses are exactly alike.
So, How Do We Calculate ROCE?
The formula for calculating the return on capital employed is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
Or for Torex Gold Resources:
0.12 = US$128m ÷ (US$1.3b - US$216m) (Based on the trailing twelve months to September 2019.)
So, Torex Gold Resources has an ROCE of 12%.
View our latest analysis for Torex Gold Resources
Is Torex Gold Resources's ROCE Good?
ROCE can be useful when making comparisons, such as between similar companies. In our analysis, Torex Gold Resources's ROCE is meaningfully higher than the 3.2% average in the Metals and Mining industry. I think that's good to see, since it implies the company is better than other companies at making the most of its capital. Separate from Torex Gold Resources's performance relative to its industry, its ROCE in absolute terms looks satisfactory, and it may be worth researching in more depth.
In our analysis, Torex Gold Resources's ROCE appears to be 12%, compared to 3 years ago, when its ROCE was 1.9%. This makes us think the business might be improving. You can click on the image below to see (in greater detail) how Torex Gold Resources's past growth compares to other companies.
TSX:TXG Past Revenue and Net Income, January 28th 2020
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When considering this metric, keep in mind that it is backwards looking, and not necessarily predictive. ROCE can be deceptive for cyclical businesses, as returns can look incredible in boom times, and terribly low in downturns. ROCE is only a point-in-time measure. We note Torex Gold Resources could be considered a cyclical business. What happens in the future is pretty important for investors, so we have prepared a free report on analyst forecasts for Torex Gold Resources.
Torex Gold Resources's Current Liabilities And Their Impact On Its ROCE
Short term (or current) liabilities, are things like supplier invoices, overdrafts, or tax bills that need to be paid within 12 months. Due to the way ROCE is calculated, a high level of current liabilities makes a company look as though it has less capital employed, and thus can (sometimes unfairly) boost the ROCE. To counteract this, we check if a company has high current liabilities, relative to its total assets.
Torex Gold Resources has current liabilities of US$216m and total assets of US$1.3b. As a result, its current liabilities are equal to approximately 17% of its total assets. Low current liabilities are not boosting the ROCE too much.
Story continues
The Bottom Line On Torex Gold Resources's ROCE
Overall, Torex Gold Resources has a decent ROCE and could be worthy of further research. Torex Gold Resources shapes up well under this analysis, but it is far from the only business delivering excellent numbers . You might also want to check this free collection of companies delivering excellent earnings growth.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
What exactly makes for an endangered species?
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“What makes for an endangered species classification isn’t always obvious,” says John A. Vucetich, professor at Michigan Technological University. Read on as he explains:
Lions and leopards are endangered species. Robins and raccoons clearly are not. The distinction seems simple until one ponders a question such as: How many lions would there have to be and how many of their former haunts would they have to inhabit before we’d agree they are no longer endangered?
To put a fine point on it, what is an endangered species? The quick answer: An endangered species is at risk of extinction. Fine, except questions about risk always come in shades and degrees, more risk and less risk.
Extinction risk increases as a species is driven to extinction from portions of its natural range. Most mammal species have been driven to extinction from half or more of their historic range because of human activities.
The query “What is an endangered species?” is quickly transformed into a far tougher question: How much loss should a species endure before we agree that the species deserves special protections and concerted effort for its betterment? My colleagues and I put a very similar question to nearly 1,000 (representatively sampled) Americans after giving them the information in the previous paragraph. The results, “What is an endangered species?: judgments about acceptable risk,” are published in Environmental Research Letters.
Three-quarters of those surveyed said a species deserves special protections if it had been driven to extinction from any more than 30% of its historic range. Not everyone was in perfect agreement. Some were more accepting of losses. The survey results indicate that people more accepting of loss were less knowledgeable about the environment and self-identify as advocates for the rights of gun- and landowners. Still, three-quarters of people from the group of people who were more accepting of loss thought special protections were warranted if a species had been lost from more than 41% of their former range.
These attitudes of the American public are aligned with the language of the US Endangered Species Act—the law for preventing species endangerment in the US. That law defines an endangered species as one that is “in danger of extinction throughout all or a significant portion of its range.”
But there might be a problem
Government decision-makers have tended to agree with the scientists they consult in judging what counts as acceptable risk and loss. These scientists express the trigger point for endangerment in very different terms. They tend to say a species is endangered if its risk of total and complete extinction exceeds 5% over 100 years.
Before human activities began elevating extinction risk, a typical vertebrate species would have experienced an extinction risk of 1% over a 10,000-year period. The extinction risk that decision-makers and their consultant experts have tended to consider acceptable (5% over 100 years) corresponds to an extinction risk many times greater that the extinction risk we currently impose on biodiversity! Experts and decision-makers—using a law designed to mitigate the biodiversity crisis—tend to allow for stunningly high levels of risk. But the law and the general public seem accepting of only lower risk that would greatly mitigate the biodiversity crisis.
What’s going on?
One possibility is that experts and decision-makers are more accepting of the risks and losses because they believe greater protection would be impossibly expensive. If so, the American public may be getting it right, not the experts and decision-makers. Why? Because the law allows for two separate judgments. The first judgment is, is the species endangered and therefore deserving of protection? The second judgment is, can the American people afford that protection? Keeping those judgments separate is vital because making a case that more funding and effort is required to solve the biodiversity crisis is not helped by experts and decision-makers when they grossly understate the problem—as they do when they judge endangerment to entail such extraordinarily high levels of risk and loss.
Facts and values
Another possible explanation for the judgments of experts and decision-makers was uncovered in an earlier paper led by Jeremy Bruskotter of Ohio State University, who is also a collaborator on this paper. They showed that experts tended to offer judgments about grizzly bear endangerment based not so much on their own independent expert judgment, but on the basis of what they think (rightly or wrongly) their peers’ judgment would be.
Regardless of the explanation, a good answer to the question “What is an endangered species?” is an inescapable synthesis of facts and values. Experts on endangered species have a better handle on the facts than the general public. However, there is cause for concern when decision-makers do not reflect the broadly held values of their constituents. An important possible explanation for this discrepancy in values is the influence of special interests on decision-makers and experts charged with caring for biodiversity.
Getting the answer right is of grave importance. If we do not know well enough what an endangered species is, then we cannot know well enough what it means to conserve nature, because conserving nature is largely—either directly or indirectly—about giving special care to endangered species until they no longer deserve that label.
About the study
The research was supported in part by the Humane Society of the United States (HSUS) and Center for Biological Diversity (CBD). Survey design, data analysis, and manuscript preparation took place without consulting HSUS or CBD.
Research collaborators include Jeremy T. Bruskotter of Ohio State University, Adam Feltz of University of Oklahoma, and Tom Offer-Westort, also of University of Oklahoma.
Source: Michigan Technological University
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Table of Content
1 Introduction of Data Protection Market
1.1 Overview of the Market1.2 Scope of Report1.3 Assumptions
2 Executive Summary
3 Research Methodology of Verified Market Research
3.1 Data Mining3.2 Validation3.3 Primary Interviews3.4 List of Data Sources
4 Data Protection Market Outlook
4.1 Overview4.2 Market Dynamics4.2.1 Drivers4.2.2 Restraints4.2.3 Opportunities4.3 Porters Five Force Model4.4 Value Chain Analysis
5 Data Protection Market, By Deployment Model
5.1 Overview
6 Data Protection Market, By Solution
6.1 Overview
7 Data Protection Market, By Vertical
7.1 Overview
8 Data Protection Market, By Geography
8.1 Overview8.2 North America8.2.1 U.S.8.2.2 Canada8.2.3 Mexico8.3 Europe8.3.1 Germany8.3.2 U.K.8.3.3 France8.3.4 Rest of Europe8.4 Asia Pacific8.4.1 China8.4.2 Japan8.4.3 India8.4.4 Rest of Asia Pacific8.5 Rest of the World8.5.1 Latin America8.5.2 Middle East
9 Data Protection Market Competitive Landscape
9.1 Overview9.2 Company Market Ranking9.3 Key Development Strategies
10 Company Profiles
10.1.1 Overview10.1.2 Financial Performance10.1.3 Product Outlook10.1.4 Key Developments
11 Appendix
11.1 Related Research
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Highlights of Report
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Analysts with high expertise in data gathering and governance utilize industry techniques to collate and examine data at all stages. Our analysts are trained to combine modern data collection techniques, superior research methodology, subject expertise and years of collective experience to produce informative and accurate research reports.
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