There's Been No Shortage Of Growth Recently For Youngtimers' (VTX:YTME) Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Youngtimers (VTX:YTME) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Youngtimers is:

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

0.071 = CHF732k ÷ (CHF11m - CHF403k) (Based on the trailing twelve months to December 2023).

Thus, Youngtimers has an ROCE of 7.1%. Ultimately, that's a low return and it under-performs the IT industry average of 14%.

See our latest analysis for Youngtimers

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'd like to look at how Youngtimers has performed in the past in other metrics, you can view this free graph of Youngtimers' past earnings, revenue and cash flow.

How Are Returns Trending?

We're delighted to see that Youngtimers is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 7.1% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Youngtimers is utilizing 65% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a related note, the company's ratio of current liabilities to total assets has decreased to 3.7%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Youngtimers has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Youngtimers' ROCE

Overall, Youngtimers gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. With that in mind, we believe the promising trends warrant this stock for further investigation.

One final note, you should learn about the 4 warning signs we've spotted with Youngtimers (including 2 which are concerning) .

While Youngtimers 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.