Yahoo Finance Source Rock Royalties' (CVE:SRR) Returns On Capital Are Heading Higher
What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Speaking of which, we noticed some great changes in Source Rock Royalties' (CVE:SRR) returns on capital, so let's have 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. To calculate this metric for Source Rock Royalties, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.074 = CA$2.0m ÷ (CA$27m - CA$463k) (Based on the trailing twelve months to September 2023).
Thus, Source Rock Royalties has an ROCE of 7.4%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 9.9%.
See our latest analysis for Source Rock Royalties
Historical performance is a great place to start when researching a stock so above you can see the gauge for Source Rock Royalties' ROCE against it's prior returns. If you'd like to look at how Source Rock Royalties has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
So How Is Source Rock Royalties' ROCE Trending?
Source Rock Royalties 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 three years ago but is is now generating 7.4% on its capital. And unsurprisingly, like most companies trying to break into the black, Source Rock Royalties is utilizing 53% more capital than it was three 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.
The Key Takeaway
Overall, Source Rock Royalties gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Since the stock has returned a solid 17% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.
If you'd like to know more about Source Rock Royalties, we've spotted 5 warning signs, and 2 of them are concerning.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.
