Investors Shouldn't Overlook VERBUND's (VIE:VER) Impressive Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in VERBUND's (VIE:VER) returns on capital, so let's have a look.

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 VERBUND:

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

0.26 = €4.2b ÷ (€19b - €3.0b) (Based on the trailing twelve months to September 2023).

Thus, VERBUND has an ROCE of 26%. That's a fantastic return and not only that, it outpaces the average of 7.7% earned by companies in a similar industry.

Check out our latest analysis for VERBUND

In the above chart we have measured VERBUND's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering VERBUND for free.

What Does the ROCE Trend For VERBUND Tell Us?

Investors would be pleased with what's happening at VERBUND. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 26%. The amount of capital employed has increased too, by 69%. So we're very much inspired by what we're seeing at VERBUND thanks to its ability to profitably reinvest capital.

The Bottom Line On VERBUND's ROCE

To sum it up, VERBUND has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 72% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if VERBUND can keep these trends up, it could have a bright future ahead.

On a final note, we found 3 warning signs for VERBUND (1 is concerning) you should be aware of.

VERBUND 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.