Under The Bonnet, Anglo American Platinum's (JSE:AMS) Returns Look Impressive

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Anglo American Platinum's (JSE:AMS) returns on capital, so let's have a look.

What Is 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. To calculate this metric for Anglo American Platinum, this is the formula:

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

0.31 = R38b ÷ (R177b - R57b) (Based on the trailing twelve months to June 2023).

So, Anglo American Platinum has an ROCE of 31%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 20%.

Check out our latest analysis for Anglo American Platinum

Above you can see how the current ROCE for Anglo American Platinum 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 Anglo American Platinum here for free.

What Can We Tell From Anglo American Platinum's ROCE Trend?

The trends we've noticed at Anglo American Platinum are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 31%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 96%. So we're very much inspired by what we're seeing at Anglo American Platinum thanks to its ability to profitably reinvest capital.

The Bottom Line On Anglo American Platinum's ROCE

To sum it up, Anglo American Platinum has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 202% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Anglo American Platinum can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Anglo American Platinum, we've spotted 3 warning signs, and 1 of them is concerning.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.