Yahoo Finance Returns On Capital Are Showing Encouraging Signs At Uranium Royalty (TSE:URC)
What trends should we look for it we want to identify stocks that can 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Uranium Royalty (TSE:URC) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
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 Uranium Royalty is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0058 = CA$1.4m ÷ (CA$235m - CA$972k) (Based on the trailing twelve months to October 2023).
Therefore, Uranium Royalty has an ROCE of 0.6%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 10.0%.
Check out our latest analysis for Uranium Royalty
Above you can see how the current ROCE for Uranium Royalty compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
The Trend Of ROCE
The fact that Uranium Royalty is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 0.6% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Uranium Royalty is utilizing 1,366% more capital than it was five years ago. 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.
In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 0.4%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.
The Key Takeaway
Long story short, we're delighted to see that Uranium Royalty's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 209% to shareholders over the last three 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.
Like most companies, Uranium Royalty does come with some risks, and we've found 1 warning sign that you should be aware of.
While Uranium Royalty isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
