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'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Sylvania Platinum's (LON:SLP) look very promising so lets take a look.
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. Analysts use this formula to calculate it for Sylvania Platinum:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.46 = US$118m ÷ (US$265m - US$10m) (Based on the trailing twelve months to December 2021).
Therefore, Sylvania Platinum has an ROCE of 46%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.
See 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.
How Are Returns Trending?
Sylvania Platinum is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 46%. Basically the business is earning more per dollar of capital invested and in addition to that, 125% more capital is being employed now too. So we're very much inspired by what we're seeing at Sylvania Platinum thanks to its ability to profitably reinvest capital.
What We Can Learn From Sylvania Platinum's ROCE
All in all, it's terrific to see that Sylvania Platinum is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 804% 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.
Sylvania Platinum does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is significant...
If you want to search for more stocks that have been earning high returns, check out this free list 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.
