Returns On Capital Are A Standout For Rana Gruber (OB:RANA)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. With that in mind, the ROCE of Rana Gruber (OB:RANA) looks great, so lets see what the trend can tell us.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Rana Gruber, this is the formula:

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

0.33 = kr380m ÷ (kr1.5b - kr360m) (Based on the trailing twelve months to June 2023).

Therefore, Rana Gruber has an ROCE of 33%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 11%.

View our latest analysis for Rana Gruber

In the above chart we have measured Rana Gruber's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Rana Gruber here for free.

What Can We Tell From Rana Gruber's ROCE Trend?

We like the trends that we're seeing from Rana Gruber. Over the last four years, returns on capital employed have risen substantially to 33%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 56%. 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 24%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Rana Gruber has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

To sum it up, Rana Gruber has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 91% return over the last year. Therefore, we think it would be worth your time to check if these trends are going to continue.

Rana Gruber does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those make us uncomfortable...

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.