The Trend Of High Returns At Virco Mfg (NASDAQ:VIRC) Has Us Very Interested
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. And in light of that, the trends we're seeing at Virco Mfg's (NASDAQ:VIRC) look very promising so lets take a look.
Understanding 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. The formula for this calculation on Virco Mfg is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.26 = US$29m ÷ (US$157m - US$42m) (Based on the trailing twelve months to October 2023).
Thus, Virco Mfg has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Commercial Services industry average of 9.1%.
Check out our latest analysis for Virco Mfg
In the above chart we have measured Virco Mfg's 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 Virco Mfg.
How Are Returns Trending?
The trends we've noticed at Virco Mfg are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 26%. The amount of capital employed has increased too, by 20%. So we're very much inspired by what we're seeing at Virco Mfg thanks to its ability to profitably reinvest capital.
Our Take On Virco Mfg's ROCE
In summary, it's great to see that Virco Mfg can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.
If you want to continue researching Virco Mfg, you might be interested to know about the 2 warning signs that our analysis has discovered.
Virco Mfg 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.
