Yahoo Finance Sylvania Platinum (LON:SLP) Knows How To Allocate Capital Effectively
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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at Sylvania Platinum's (LON:SLP) look very promising so lets take a look.
What Is Return On Capital Employed (ROCE)?
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 Sylvania Platinum is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.30 = US$80m ÷ (US$279m - US$11m) (Based on the trailing twelve months to June 2022).
Therefore, Sylvania Platinum has an ROCE of 30%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.
View our latest analysis for Sylvania Platinum
Above you can see how the current ROCE for Sylvania Platinum 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.
What Does the ROCE Trend For Sylvania Platinum Tell Us?
We like the trends that we're seeing from Sylvania Platinum. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 30%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 116%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
The Bottom Line
In summary, it's great to see that Sylvania Platinum 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 689% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Like most companies, Sylvania Platinum does come with some risks, and we've found 1 warning sign that you should be aware of.
High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.
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