Sylvania Platinum (LON:SLP) Is Very Good At Capital Allocation
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. 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)?
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 Sylvania Platinum is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.33 = US$89m ÷ (US$289m - US$17m) (Based on the trailing twelve months to December 2022).
Therefore, Sylvania Platinum has an ROCE of 33%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 12%.
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.
So How Is Sylvania Platinum's ROCE Trending?
Sylvania Platinum is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 33%. Basically the business is earning more per dollar of capital invested and in addition to that, 104% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
The Bottom Line On Sylvania Platinum's ROCE
In summary, it's great to see that Sylvania Platinum can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 437% 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 Sylvania Platinum can keep these trends up, it could have a bright future ahead.
On a final note, we found 2 warning signs for Sylvania Platinum (1 is a bit concerning) you should be aware of.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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.
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