Under The Bonnet, Robex Resources Returns Look Impressive There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. And in light of that, the trends we're seeing at Robex Resources' (CVE:RBX) look very promising so lets take a look.
What Is Return On Capital Employed (ROCE)?
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. Analysts use this formula to calculate it for Robex Resources:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.36 = CA$44m ÷ (CA$143m - CA$21m) (Based on the trailing twelve months to June 2022).
So, Robex Resources has an ROCE of 36%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 3.5%.
Check out our latest analysis for Robex Resources
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While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Robex Resources' past further, check out this free graph of past earnings, revenue and cash flow.
What Can We Tell From Robex Resources' ROCE Trend?
Investors would be pleased with what's happening at Robex Resources. The data shows that returns on capital have increased substantially over the last five years to 36%. Basically the business is earning more per dollar of capital invested and in addition to that, 80% more capital is being employed now too. 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.
On a related note, the company's ratio of current liabilities to total assets has decreased to 15%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Robex Resources has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.
The Bottom Line On Robex Resources' ROCE
All in all, it's terrific to see that Robex Resources is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 256% 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.
On a final note, we've found 2 warning signs for Robex Resources that we think you should be aware of.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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