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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of SilverCrest Metals (TSE:SIL) looks great, so lets see what the trend can tell us.

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 SilverCrest Metals:

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

0.29 = US$133m ÷ (US$498m - US$35m) (Based on the trailing twelve months to June 2024).

Therefore, SilverCrest Metals has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 3.1%.

Check out our latest analysis for SilverCrest Metals

Above you can see how the current ROCE for SilverCrest Metals compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering SilverCrest Metals for free.

What Does the ROCE Trend For SilverCrest Metals Tell Us?

The fact that SilverCrest Metals is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 29% on its capital. Not only that, but the company is utilizing 662% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Key Takeaway

Long story short, we're delighted to see that SilverCrest Metals' reinvestment activities have paid off and the company is now profitable. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 71% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

SilverCrest Metals does have some risks though, and we've spotted 1 warning sign for SilverCrest Metals that you might be interested in.

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.