Should We Be Excited About The Trends Of Returns At Viñedos Emiliana (SNSE:EMILIANA)?

There are a few key trends to look for if we want to identify the next 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Viñedos Emiliana (SNSE:EMILIANA), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Viñedos Emiliana is:

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

0.035 = CL$1.7b ÷ (CL$53b - CL$5.8b) (Based on the trailing twelve months to September 2020).

So, Viñedos Emiliana has an ROCE of 3.5%. Ultimately, that's a low return and it under-performs the Beverage industry average of 9.7%.

See our latest analysis for Viñedos Emiliana

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 Viñedos Emiliana's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Viñedos Emiliana's ROCE Trending?

In terms of Viñedos Emiliana's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 3.5% for the last five years, and the capital employed within the business has risen 41% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 11% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Key Takeaway

As we've seen above, Viñedos Emiliana's returns on capital haven't increased but it is reinvesting in the business. Unsurprisingly then, the total return to shareholders over the last five years has been flat. Therefore based on the analysis done in this article, we don't think Viñedos Emiliana has the makings of a multi-bagger.

One more thing: We've identified 4 warning signs with Viñedos Emiliana (at least 1 which makes us a bit uncomfortable) , and understanding these would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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.
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