Investors Will Want Wheaton Precious Metals' (TSE:WPM) Growth In ROCE To Persist

There are a few key trends to look for if we want to identify the next 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Wheaton Precious Metals (TSE:WPM) so let's look a bit deeper.

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. The formula for this calculation on Wheaton Precious Metals is:

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

0.065 = US$444m ÷ (US$6.9b - US$19m) (Based on the trailing twelve months to June 2023).

Therefore, Wheaton Precious Metals has an ROCE of 6.5%. On its own that's a low return, but compared to the average of 2.5% generated by the Metals and Mining industry, it's much better.

Check out our latest analysis for Wheaton Precious Metals

In the above chart we have measured Wheaton Precious Metals' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Wheaton Precious Metals here for free.

What Can We Tell From Wheaton Precious Metals' ROCE Trend?

Wheaton Precious Metals has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 352% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

To bring it all together, Wheaton Precious Metals has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Wheaton Precious Metals can keep these trends up, it could have a bright future ahead.

On a final note, we found 2 warning signs for Wheaton Precious Metals (1 is a bit unpleasant) you should be aware of.

While Wheaton Precious Metals 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.