Returns At Ritchie Bros. Auctioneers (NYSE:RBA) Are On The Way Up

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Ritchie Bros. Auctioneers' (NYSE:RBA) returns on capital, so let's have 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. To calculate this metric for Ritchie Bros. Auctioneers, this is the formula:

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

0.15 = US$320m ÷ (US$2.9b - US$795m) (Based on the trailing twelve months to December 2022).

Therefore, Ritchie Bros. Auctioneers has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 8.6% it's much better.

Check out our latest analysis for Ritchie Bros. Auctioneers

In the above chart we have measured Ritchie Bros. Auctioneers' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Ritchie Bros. Auctioneers.

What Does the ROCE Trend For Ritchie Bros. Auctioneers Tell Us?

Ritchie Bros. Auctioneers is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 15%. The amount of capital employed has increased too, by 27%. 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.

The Key Takeaway

All in all, it's terrific to see that Ritchie Bros. Auctioneers is reaping the rewards from prior investments and is growing its capital base. And with a respectable 96% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know more about Ritchie Bros. Auctioneers, we've spotted 2 warning signs, and 1 of them is a bit concerning.

While Ritchie Bros. Auctioneers isn't earning the highest return, check out this free list of companies that are 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.