Why The 25% Return On Capital At SilverCrest Metals (TSE:SIL) Should Have Your Attention
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of SilverCrest Metals (TSE:SIL) looks great, so lets see what the trend can tell us.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for SilverCrest Metals, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.25 = US$87m ÷ (US$375m - US$26m) (Based on the trailing twelve months to June 2023).
Therefore, SilverCrest Metals has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 2.0%.
View our latest analysis for SilverCrest Metals
In the above chart we have measured SilverCrest Metals' 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 SilverCrest Metals.
The Trend Of ROCE
SilverCrest Metals has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 25% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, SilverCrest Metals is utilizing 951% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
In Conclusion...
Long story short, we're delighted to see that SilverCrest Metals' reinvestment activities have paid off and the company is now profitable. Since the stock has returned a solid 67% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
One more thing to note, we've identified 1 warning sign with SilverCrest Metals and understanding this should be part of your investment process.
SilverCrest Metals is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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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.
