Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in (ASX:IRD) returns on capital, so let's have a look.

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 Iron Road, this is the formula:

0.041 = AU$5.7m ÷ (AU$140m - AU$1.3m) (Based on the trailing twelve months to December 2024).

Therefore, Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 9.6%.

Check out our latest analysis for Iron Road

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these graphs detailing revenue and cash flow performance of Iron Road.

Shareholders will be relieved that Iron Road has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 4.1%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

In summary, we're delighted to see that Iron Road has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Considering the stock has delivered 0.8% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.