Impala Platinum Holdings (JSE:IMP) Is Investing Its Capital With Increasing Efficiency

By
Simply Wall St
Published
April 11, 2022
JSE:IMP
Source: Shutterstock

Did you know there are some financial metrics that can provide clues of a potential 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Impala Platinum Holdings' (JSE:IMP) returns on capital, so let's have a look.

What is 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. Analysts use this formula to calculate it for Impala Platinum Holdings:

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

0.39 = R48b ÷ (R142b - R17b) (Based on the trailing twelve months to December 2021).

So, Impala Platinum Holdings has an ROCE of 39%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 26%.

See our latest analysis for Impala Platinum Holdings

roce
JSE:IMP Return on Capital Employed April 11th 2022

In the above chart we have measured Impala Platinum Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Impala Platinum Holdings.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Impala Platinum Holdings 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 39% on its capital. And unsurprisingly, like most companies trying to break into the black, Impala Platinum Holdings is utilizing 67% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On Impala Platinum Holdings' ROCE

Overall, Impala Platinum Holdings gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 469% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Impala Platinum Holdings can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Impala Platinum Holdings, we've spotted 5 warning signs, and 1 of them is significant.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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