There's Been No Shortage Of Growth Recently For Strategic Minerals' (LON:SML) Returns On Capital
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Strategic Minerals (LON:SML) and its trend of ROCE, we really liked what we saw.
What Is Return On Capital Employed (ROCE)?
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 Strategic Minerals:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.019 = US$279k ÷ (US$15m - US$710k) (Based on the trailing twelve months to December 2021).
So, Strategic Minerals has an ROCE of 1.9%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 14%.
See our latest analysis for Strategic Minerals
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'd like to look at how Strategic Minerals has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
So How Is Strategic Minerals' ROCE Trending?
We're delighted to see that Strategic Minerals is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 1.9% on its capital. In addition to that, Strategic Minerals is employing 439% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
Our Take On Strategic Minerals' ROCE
To the delight of most shareholders, Strategic Minerals has now broken into profitability. And since the stock has dived 89% over the last five years, there may be other factors affecting the company's prospects. Still, it's worth doing some further research to see if the trends will continue into the future.
Strategic Minerals does have some risks, we noticed 5 warning signs (and 3 which are a bit concerning) we think you should know about.
While Strategic Minerals isn't earning the highest return, check out this free list of companies that are 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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