Can Vassiliko Cement Works (CSE:VCW) Continue To Grow Its Returns On Capital?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So on that note, Vassiliko Cement Works (CSE:VCW) looks quite promising in regards to its trends of return on capital.

What is 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 Vassiliko Cement Works, this is the formula:

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

0.06 = €17m ÷ (€294m - €15m) (Based on the trailing twelve months to June 2020).

Therefore, Vassiliko Cement Works has an ROCE of 6.0%. Ultimately, that's a low return and it under-performs the Basic Materials industry average of 9.3%.

See our latest analysis for Vassiliko Cement Works

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 Vassiliko Cement Works' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Vassiliko Cement Works' ROCE Trend?

Vassiliko Cement Works has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 64% in that same time. 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

In Conclusion...

To sum it up, Vassiliko Cement Works is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 121% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 2 warning signs for Vassiliko Cement Works you'll probably want to know about.

While Vassiliko Cement Works 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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