Stock Analysis

Viohalco (EBR:VIO) Is Experiencing Growth In Returns On Capital

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If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Viohalco (EBR:VIO) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Viohalco is:

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

0.14 = €497m ÷ (€6.0b - €2.4b) (Based on the trailing twelve months to December 2022).

Therefore, Viohalco has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 13% generated by the Metals and Mining industry.

Check out our latest analysis for Viohalco

ENXTBR:VIO Return on Capital Employed March 19th 2023

Historical performance is a great place to start when researching a stock so above you can see the gauge for Viohalco's ROCE against it's prior returns. If you're interested in investigating Viohalco's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Viohalco is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 14%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 70%. So we're very much inspired by what we're seeing at Viohalco thanks to its ability to profitably reinvest capital.

The Bottom Line On Viohalco's ROCE

All in all, it's terrific to see that Viohalco is reaping the rewards from prior investments and is growing its capital base. Since the stock has only returned 20% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you want to know some of the risks facing Viohalco we've found 2 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

While Viohalco 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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Find out whether Viohalco is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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