Why The 22% Return On Capital At VERBUND (VIE:VER) Should Have Your Attention

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. So when we looked at the ROCE trend of VERBUND (VIE:VER) we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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)

0.22 = €3.5b ÷ (€18b - €2.8b) (Based on the trailing twelve months to June 2023).

So, VERBUND has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Electric Utilities industry average of 9.2%.

Check out our latest analysis for VERBUND

Above you can see how the current ROCE for VERBUND 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 VERBUND.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from VERBUND. Over the last five years, returns on capital employed have risen substantially to 22%. The amount of capital employed has increased too, by 52%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From VERBUND's ROCE

All in all, it's terrific to see that VERBUND is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know more about VERBUND, we've spotted 2 warning signs, and 1 of them makes us a bit uncomfortable.

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.