Returns On Capital Are Showing Encouraging Signs At Orogen Royalties (CVE:OGN)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Orogen Royalties (CVE:OGN) so let's look a bit deeper.

What Is 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. Analysts use this formula to calculate it for Orogen Royalties:

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

0.023 = CA$1.4m ÷ (CA$64m - CA$1.3m) (Based on the trailing twelve months to March 2024).

So, Orogen Royalties has an ROCE of 2.3%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 1.2%.

Check out our latest analysis for Orogen Royalties

Above you can see how the current ROCE for Orogen Royalties compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Orogen Royalties .

What The Trend Of ROCE Can Tell Us

Orogen Royalties has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 2.3% on its capital. Not only that, but the company is utilizing 410% 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.

What We Can Learn From Orogen Royalties' ROCE

In summary, it's great to see that Orogen Royalties has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 288% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Orogen Royalties can keep these trends up, it could have a bright future ahead.

On a final note, we've found 2 warning signs for Orogen Royalties that we think you should be aware of.

While Orogen Royalties may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com