Robex Resources (CVE:RBX) Will Want To Turn Around Its Return Trends
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Robex Resources (CVE:RBX) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper 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 Robex Resources, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = CA$32m ÷ (CA$312m - CA$73m) (Based on the trailing twelve months to September 2023).
So, Robex Resources has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 2.0% generated by the Metals and Mining industry.
Check out 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 covering Robex Resources' past earnings, revenue and cash flow.
What Can We Tell From Robex Resources' ROCE Trend?
The trend of ROCE doesn't look fantastic because it's fallen from 31% five years ago, while the business's capital employed increased by 225%. That being said, Robex Resources raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Robex Resources' earnings and if they change as a result from the capital raise.
On a side note, Robex Resources has done well to pay down its current liabilities to 23% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.
Our Take On Robex Resources' ROCE
To conclude, we've found that Robex Resources is reinvesting in the business, but returns have been falling. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 187% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
On a final note, we've found 1 warning sign for Robex Resources that we think you should be aware of.
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.
