Some Investors May Be Worried About Sino-Platinum MetalsLtd's (SHSE:600459) Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Sino-Platinum MetalsLtd (SHSE:600459), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Sino-Platinum MetalsLtd is:

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

0.062 = CN¥601m ÷ (CN¥15b - CN¥5.7b) (Based on the trailing twelve months to June 2024).

Therefore, Sino-Platinum MetalsLtd has an ROCE of 6.2%. On its own, that's a low figure but it's around the 7.0% average generated by the Metals and Mining industry.

See our latest analysis for Sino-Platinum MetalsLtd

Above you can see how the current ROCE for Sino-Platinum MetalsLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Sino-Platinum MetalsLtd for free.

What Can We Tell From Sino-Platinum MetalsLtd's ROCE Trend?

When we looked at the ROCE trend at Sino-Platinum MetalsLtd, we didn't gain much confidence. To be more specific, ROCE has fallen from 8.3% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

Bringing it all together, while we're somewhat encouraged by Sino-Platinum MetalsLtd's reinvestment in its own business, we're aware that returns are shrinking. Unsurprisingly, the stock has only gained 6.9% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

On a final note, we found 2 warning signs for Sino-Platinum MetalsLtd (1 is concerning) you should be aware of.

While Sino-Platinum MetalsLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.