Under The Bonnet, Platina Resources' (ASX:PGM) Returns Look Impressive

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. So when we looked at the ROCE trend of Platina Resources (ASX:PGM) we really liked what we saw.

Understanding 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 Platina Resources:

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

0.50 = AU$8.0m ÷ (AU$16m - AU$160k) (Based on the trailing twelve months to December 2021).

So, Platina Resources has an ROCE of 50%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 8.8%.

Check out our latest analysis for Platina Resources

Historical performance is a great place to start when researching a stock so above you can see the gauge for Platina Resources' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Platina Resources, check out these free graphs here.

The Trend Of ROCE

It's great to see that Platina Resources has started to generate some pre-tax earnings from prior investments. The company was generating losses five years ago, but now it's turned around, earning 50% which is no doubt a relief for some early shareholders. In regards to capital employed, Platina Resources is using 36% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. Platina Resources could be selling under-performing assets since the ROCE is improving.

The Key Takeaway

In a nutshell, we're pleased to see that Platina Resources has been able to generate higher returns from less capital. And since the stock has dived 73% 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.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Platina Resources (of which 1 is a bit concerning!) that you should know about.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.