Returns At Frutícola Viconto (SNSE:VICONTO) Are On The Way Up

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. Speaking of which, we noticed some great changes in Frutícola Viconto's (SNSE:VICONTO) returns on capital, so let's have a look.

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. To calculate this metric for Frutícola Viconto, this is the formula:

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

0.007 = US$375k ÷ (US$59m - US$5.7m) (Based on the trailing twelve months to March 2021).

Therefore, Frutícola Viconto has an ROCE of 0.7%. In absolute terms, that's a low return and it also under-performs the Food industry average of 9.3%.

View our latest analysis for Frutícola Viconto

Historical performance is a great place to start when researching a stock so above you can see the gauge for Frutícola Viconto's ROCE against it's prior returns. If you'd like to look at how Frutícola Viconto has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Frutícola Viconto has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 0.7% on its capital. In addition to that, Frutícola Viconto is employing 22% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Key Takeaway

Long story short, we're delighted to see that Frutícola Viconto's reinvestment activities have paid off and the company is now profitable. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we found 3 warning signs for Frutícola Viconto (1 makes us a bit uncomfortable) you should be aware of.

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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