To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. With that in mind, the ROCE of Grange Resources (ASX:GRR) looks great, so lets see what the trend can tell us.

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 Grange Resources is:

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

0.45 = AU$436m ÷ (AU$1.1b - AU$160m) (Based on the trailing twelve months to December 2021).

Thus, Grange Resources has an ROCE of 45%.  That's a fantastic return and not only that, it outpaces the average of 8.7% earned by companies in a similar industry.

View our latest analysis for Grange Resources  roce

Historical performance is a great place to start when researching a stock so above you can see the gauge for Grange Resources' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Grange Resources, check out these freegraphs here.

What The Trend Of ROCE Can Tell Us

Grange Resources is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 45%. The amount of capital employed has increased too, by 144%. So we're very much inspired by what we're seeing at Grange Resources thanks to its ability to profitably reinvest capital.

What We Can Learn From Grange Resources' ROCE

In summary, it's great to see that Grange Resources can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 1,223% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.



Like most companies, Grange Resources does come with some risks, and we've found 2 warning signs that you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this freelist of stocks with solid balance sheets that are also earning high 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.