There are a few key trends to look for if we want to identify the next 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Orogen Royalties (CVE:OGN) so let's look a bit deeper.

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. To calculate this metric for Orogen Royalties, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.021 = CA$1.3m ÷ (CA$63m - CA$878k) (Based on the trailing twelve months to December 2023).

Thus, Orogen Royalties has an ROCE of 2.1%. On its own that's a low return on capital but it's in line with the industry's average returns of 2.1%.

Check out our latest analysis for Orogen Royalties

In the above chart we have measured Orogen Royalties' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Orogen Royalties .

What The Trend Of ROCE Can Tell Us

Orogen Royalties 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 2.1% on its capital. In addition to that, Orogen Royalties is employing 382% 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.

On a related note, the company's ratio of current liabilities to total assets has decreased to 1.4%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Orogen Royalties has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

In summary, it's great to see that Orogen Royalties has managed to break into profitability and is continuing to reinvest in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.