We Like These Underlying Return On Capital Trends At Wheaton Precious Metals (TSE:WPM)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Wheaton Precious Metals (TSE:WPM) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Wheaton Precious Metals:

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

0.12 = US$751m ÷ (US$6.5b - US$112m) (Based on the trailing twelve months to March 2022).

Thus, Wheaton Precious Metals has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 2.5% generated by the Metals and Mining industry.

View our latest analysis for Wheaton Precious Metals

Above you can see how the current ROCE for Wheaton Precious Metals compares to its prior returns on capital, but there's only so much you can tell from the past. 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 Wheaton Precious Metals' ROCE Trend?

Wheaton Precious Metals' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 131% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Key Takeaway

To sum it up, Wheaton Precious Metals is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a solid 84% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. 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.

If you want to know some of the risks facing Wheaton Precious Metals we've found 2 warning signs (1 is potentially serious!) that you should be aware of before investing here.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.