Under The Bonnet, Sylvania Platinum's (LON:SLP) Returns Look Impressive

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Sylvania Platinum (LON:SLP) looks great, so lets see what the trend can tell us.

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. Analysts use this formula to calculate it for Sylvania Platinum:

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

0.29 = US$48m ÷ (US$177m - US$11m) (Based on the trailing twelve months to December 2019).

So, Sylvania Platinum has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 12%.

View our latest analysis for Sylvania Platinum

roce

In the above chart we have measured Sylvania Platinum's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Sylvania Platinum's ROCE Trend?

Sylvania Platinum is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 29%. 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 31%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

All in all, it's terrific to see that Sylvania Platinum is reaping the rewards from prior investments and is growing its capital base. And a remarkable 560% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 2 warning signs facing Sylvania Platinum that you might find interesting.

Sylvania Platinum is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

This article by Simply Wall St is general in nature. 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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