Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Uranium Royalty (TSE:URC) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Uranium Royalty:

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

0.028 = CA$7.8m ÷ (CA$279m - CA$2.8m) (Based on the trailing twelve months to April 2024).

So, Uranium Royalty has an ROCE of 2.8%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 8.5%.

View our latest analysis for Uranium Royalty

In the above chart we have measured Uranium Royalty's 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 Uranium Royalty .

So How Is Uranium Royalty's ROCE Trending?

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 2.8% which is a sight for sore eyes. Not only that, but the company is utilizing 830% more capital than before, but that's to be expected from a company 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.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 1.0%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line On Uranium Royalty's ROCE

Long story short, we're delighted to see that Uranium Royalty's reinvestment activities have paid off and the company is now profitable. Given the stock has declined 13% in the last three years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.