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Why The 35% Return On Capital At Robex Resources (CVE:RBX) Should Have Your Attention

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at Robex Resources' (CVE:RBX) look very promising so lets take a look.

Understanding 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)

0.35 = CA$37m ÷ (CA$143m - CA$35m) (Based on the trailing twelve months to December 2021).

So, Robex Resources has an ROCE of 35%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 2.3%.

View our latest analysis for Robex Resources

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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 want to delve into the historical earnings, revenue and cash flow of Robex Resources, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

Robex Resources has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 35% on its capital. In addition to that, Robex Resources is employing 89% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

One more thing to note, Robex Resources has decreased current liabilities to 25% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. 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

Long story short, we're delighted to see that Robex Resources' reinvestment activities have paid off and the company is now profitable. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Robex Resources can keep these trends up, it could have a bright future ahead.

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

Robex Resources is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.