We Like These Underlying Trends At Viohalco (EBR:VIO)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Viohalco (EBR:VIO) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for Viohalco, this is the formula:

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

0.043 = €106m ÷ (€4.1b - €1.6b) (Based on the trailing twelve months to June 2020).

So, Viohalco has an ROCE of 4.3%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 8.4%.

Check out our latest analysis for Viohalco

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.

What Can We Tell From Viohalco's ROCE Trend?

While there are companies with higher returns on capital out there, we still find the trend at Viohalco promising. The figures show that over the last five years, ROCE has grown 58% 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

In summary, we're delighted to see that Viohalco has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 156% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Viohalco can keep these trends up, it could have a bright future ahead.

Viohalco does have some risks though, and we've spotted 1 warning sign for Viohalco that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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