Yahoo Finance Anglo American Platinum's (JSE:AMS) Returns Have Hit A Wall
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So, when we ran our eye over Anglo American Platinum's (JSE:AMS) trend of ROCE, we liked what we saw.
Understanding 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. Analysts use this formula to calculate it for Anglo American Platinum:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = R18b ÷ (R169b - R47b) (Based on the trailing twelve months to December 2023).
Therefore, Anglo American Platinum has an ROCE of 15%. That's a pretty standard return and it's in line with the industry average of 15%.
See 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're interested, you can view the analysts predictions in our free analyst report for Anglo American Platinum .
What The Trend Of ROCE Can Tell Us
While the current returns on capital are decent, they haven't changed much. The company has consistently earned 15% for the last five years, and the capital employed within the business has risen 90% in that time. 15% is a pretty standard return, and it provides some comfort knowing that Anglo American Platinum has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
Our Take On Anglo American Platinum's ROCE
In the end, Anglo American Platinum has proven its ability to adequately reinvest capital at good rates of return. However, over the last five years, the stock has only delivered a 0.7% return to shareholders who held over that period. So to determine if Anglo American Platinum is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Anglo American Platinum (of which 1 is a bit unpleasant!) that you should know about.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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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