Returns on Capital Paint A Bright Future For Robex Resources (CVE:RBX)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 Robex Resources' (CVE:RBX) look very promising so lets take a look.

What Is 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. The formula for this calculation on Robex Resources is:

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).

Thus, Robex Resources has an ROCE of 36%. That's a fantastic return and not only that, it outpaces the average of 4.3% earned by companies in a similar industry.

See our latest analysis for Robex Resources

Historical performance is a great place to start when researching a stock so above you can see the gauge for Robex Resources' ROCE against it's prior returns. If you're interested in investigating Robex Resources' past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Robex Resources' ROCE Trending?

We like the trends that we're seeing from Robex Resources. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 36%. The amount of capital employed has increased too, by 80%. So we're very much inspired by what we're seeing at Robex Resources thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 15%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. 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.

What We Can Learn From 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. And a remarkable 225% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 1 warning sign for Robex Resources you'll probably want to know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.