Returns Are Gaining Momentum At Rayonier Advanced Materials (NYSE:RYAM)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Rayonier Advanced Materials (NYSE:RYAM) looks quite promising in regards to its trends of return on capital.

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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. To calculate this metric for Rayonier Advanced Materials, this is the formula:

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

0.048 = US$83m ÷ (US$2.1b - US$400m) (Based on the trailing twelve months to December 2024).

Thus, Rayonier Advanced Materials has an ROCE of 4.8%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 8.8%.

Check out our latest analysis for Rayonier Advanced Materials

In the above chart we have measured Rayonier Advanced Materials' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Rayonier Advanced Materials .

What Can We Tell From Rayonier Advanced Materials' ROCE Trend?

Like most people, we're pleased that Rayonier Advanced Materials is now generating some pretax earnings. While the business is profitable now, it used to be incurring losses on invested capital five years ago. Additionally, the business is utilizing 21% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. Rayonier Advanced Materials could be selling under-performing assets since the ROCE is improving.

The Bottom Line On Rayonier Advanced Materials' ROCE

From what we've seen above, Rayonier Advanced Materials has managed to increase it's returns on capital all the while reducing it's capital base. Since the stock has returned a staggering 312% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing to note, we've identified 1 warning sign with Rayonier Advanced Materials and understanding it should be part of your investment process.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.