Returns Are Gaining Momentum At Eastern Platinum (TSE:ELR)

·2 min read

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Eastern Platinum (TSE:ELR) so let's look a bit deeper.

Understanding 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 Eastern Platinum:

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

0.0014 = US$226k ÷ (US$178m - US$16m) (Based on the trailing twelve months to March 2022).

So, Eastern Platinum has an ROCE of 0.1%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 2.3%.

View our latest analysis for Eastern Platinum

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Historical performance is a great place to start when researching a stock so above you can see the gauge for Eastern Platinum's ROCE against it's prior returns. If you're interested in investigating Eastern Platinum's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Eastern Platinum's ROCE Trend?

Eastern Platinum has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 0.1%, which is always encouraging. While returns have increased, the amount of capital employed by Eastern Platinum has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

Our Take On Eastern Platinum's ROCE

To sum it up, Eastern Platinum is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has fallen 24% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

Eastern Platinum does have some risks, we noticed 4 warning signs (and 1 which is potentially serious) we think you should know about.

While Eastern Platinum isn't earning the highest return, check out this free list of companies that are 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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