Returns On Capital Are Showing Encouraging Signs At Wheaton Precious Metals (TSE:WPM)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Wheaton Precious Metals (TSE:WPM) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

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

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

0.084 = US$605m ÷ (US$7.2b - US$21m) (Based on the trailing twelve months to June 2024).

Thus, Wheaton Precious Metals has an ROCE of 8.4%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 3.2%.

View 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 for free.

What The Trend Of ROCE Can Tell Us

Wheaton Precious Metals has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 904% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Wheaton Precious Metals' ROCE

To sum it up, Wheaton Precious Metals is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 177% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

While Wheaton Precious Metals looks impressive, no company is worth an infinite price. The intrinsic value infographic for WPM helps visualize whether it is currently trading for a fair price.

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.