Returns Are Gaining Momentum At Eastern Platinum (TSE:ELR)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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, we've noticed some promising trends at Eastern Platinum (TSE:ELR) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Eastern Platinum, this is the formula:

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

0.0014 = US$226k ÷ (US$178m - US$16m) (Based on the trailing twelve months to March 2022).

Therefore, Eastern Platinum has an ROCE of 0.1%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 2.4%.

See our latest analysis for Eastern Platinum

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

What The Trend Of ROCE Can Tell Us

We're delighted to see that Eastern Platinum is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 0.1%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

In Conclusion...

To bring it all together, Eastern Platinum has done well to increase the returns it's generating from its capital employed. And since the stock has fallen 29% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to know some of the risks facing Eastern Platinum we've found 4 warning signs (1 can't be ignored!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.