Yahoo Finance Investors Should Be Encouraged By Ramaco Resources' (NASDAQ:METC) Returns On Capital
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at the ROCE trend of Ramaco Resources (NASDAQ:METC) we really liked what we saw.
Return On Capital Employed (ROCE): What is it?
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. The formula for this calculation on Ramaco Resources is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.28 = US$91m ÷ (US$406m - US$76m) (Based on the trailing twelve months to March 2022).
Therefore, Ramaco Resources has an ROCE of 28%. That's a fantastic return and not only that, it outpaces the average of 20% earned by companies in a similar industry.
See our latest analysis for Ramaco Resources
Above you can see how the current ROCE for Ramaco Resources compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Ramaco Resources.
The Trend Of ROCE
Ramaco Resources has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 28% on its capital. And unsurprisingly, like most companies trying to break into the black, Ramaco Resources is utilizing 145% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
What We Can Learn From Ramaco Resources' ROCE
Long story short, we're delighted to see that Ramaco Resources' reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 116% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.
Ramaco Resources does have some risks, we noticed 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.
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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.
