The Return Trends At Voestalpine (VIE:VOE) Look Promising

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Voestalpine (VIE:VOE) so let's look a bit deeper.

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. The formula for this calculation on Voestalpine is:

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

0.16 = €1.8b ÷ (€18b - €6.3b) (Based on the trailing twelve months to June 2022).

So, Voestalpine has an ROCE of 16%. That's a relatively normal return on capital, and it's around the 15% generated by the Metals and Mining industry.

View our latest analysis for Voestalpine

In the above chart we have measured Voestalpine'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 Voestalpine.

The Trend Of ROCE

Voestalpine is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 84% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

What We Can Learn From Voestalpine's ROCE

To sum it up, Voestalpine is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has fallen 44% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to know some of the risks facing Voestalpine we've found 4 warning signs (2 can't be ignored!) that you should be aware of before investing here.

While Voestalpine isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.