Returns On Capital Are A Standout For Tigers Realm Coal (ASX:TIG)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at Tigers Realm Coal's (ASX:TIG) look very promising so lets take a look.

Understanding Return On Capital Employed (ROCE)

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 Tigers Realm Coal, this is the formula:

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

0.42 = AU$68m ÷ (AU$207m - AU$44m) (Based on the trailing twelve months to June 2023).

So, Tigers Realm Coal has an ROCE of 42%. That's a fantastic return and not only that, it outpaces the average of 9.0% earned by companies in a similar industry.

Check out our latest analysis for Tigers Realm Coal

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tigers Realm Coal's ROCE against it's prior returns. If you'd like to look at how Tigers Realm Coal has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

The fact that Tigers Realm Coal is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 42% on its capital. Not only that, but the company is utilizing 907% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

One more thing to note, Tigers Realm Coal has decreased current liabilities to 21% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

Our Take On Tigers Realm Coal's ROCE

In summary, it's great to see that Tigers Realm Coal has managed to break into profitability and is continuing to reinvest in its business. Although the company may be facing some issues elsewhere since the stock has plunged 84% in the last five years. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

One more thing: We've identified 3 warning signs with Tigers Realm Coal (at least 2 which are a bit concerning) , and understanding them would certainly be useful.

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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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.