There's Been No Shortage Of Growth Recently For Vmoto's (ASX:VMT) Returns On Capital
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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, we've noticed some promising trends at Vmoto (ASX:VMT) so let's look a bit deeper.
What Is 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. The formula for this calculation on Vmoto is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = AU$10m ÷ (AU$80m - AU$24m) (Based on the trailing twelve months to June 2022).
Thus, Vmoto has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 9.1% generated by the Auto industry.
See our latest analysis for Vmoto
Above you can see how the current ROCE for Vmoto 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 Vmoto.
So How Is Vmoto's ROCE Trending?
The fact that Vmoto 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 18% on its capital. And unsurprisingly, like most companies trying to break into the black, Vmoto is utilizing 180% 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.
Our Take On Vmoto's ROCE
Overall, Vmoto gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 469% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Vmoto can keep these trends up, it could have a bright future ahead.
On a final note, we've found 1 warning sign for Vmoto that we think you should be aware of.
While Vmoto 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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