Returns on Capital Paint A Bright Future For Sylvania Platinum (LON:SLP)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. And in light of that, the trends we're seeing at Sylvania Platinum's (LON:SLP) look very promising so lets take a look.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Sylvania Platinum:

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

0.37 = US$78m ÷ (US$224m - US$14m) (Based on the trailing twelve months to December 2020).

Thus, Sylvania Platinum has an ROCE of 37%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

View our latest analysis for Sylvania Platinum

Above you can see how the current ROCE for Sylvania Platinum compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Sylvania Platinum.

The Trend Of ROCE

We're delighted to see that Sylvania Platinum is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 37% on its capital. And unsurprisingly, like most companies trying to break into the black, Sylvania Platinum is utilizing 110% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Key Takeaway

Long story short, we're delighted to see that Sylvania Platinum's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 2,133% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Sylvania Platinum does have some risks though, and we've spotted 1 warning sign for Sylvania Platinum that you might be interested in.

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