The Return Trends At Veris (ASX:VRS) Look Promising

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Veris (ASX:VRS) so let's look a bit deeper.

What Is 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. Analysts use this formula to calculate it for Veris:

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

0.038 = AU$1.8m ÷ (AU$70m - AU$21m) (Based on the trailing twelve months to June 2023).

Thus, Veris has an ROCE of 3.8%. In absolute terms, that's a low return and it also under-performs the Professional Services industry average of 15%.

See our latest analysis for Veris

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Veris' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Veris' ROCE Trend?

While the ROCE is still rather low for Veris, we're glad to see it heading in the right direction. The figures show that over the last five years, returns on capital have grown by 40%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Veris appears to been achieving more with less, since the business is using 48% less capital to run its operation. Veris may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Bottom Line On Veris' ROCE

From what we've seen above, Veris has managed to increase it's returns on capital all the while reducing it's capital base. Given the stock has declined 29% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing to note, we've identified 1 warning sign with Veris and understanding it should be part of your investment process.

While Veris 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.