VERBIO Vereinigte BioEnergie (ETR:VBK) Is Investing Its Capital With Increasing Efficiency

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in VERBIO Vereinigte BioEnergie's (ETR:VBK) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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 VERBIO Vereinigte BioEnergie, this is the formula:

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

0.39 = €365m ÷ (€1.2b - €268m) (Based on the trailing twelve months to March 2023).

So, VERBIO Vereinigte BioEnergie has an ROCE of 39%. That's a fantastic return and not only that, it outpaces the average of 23% earned by companies in a similar industry.

View our latest analysis for VERBIO Vereinigte BioEnergie

In the above chart we have measured VERBIO Vereinigte BioEnergie's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering VERBIO Vereinigte BioEnergie here for free.

How Are Returns Trending?

Investors would be pleased with what's happening at VERBIO Vereinigte BioEnergie. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 39%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 211%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On VERBIO Vereinigte BioEnergie's ROCE

To sum it up, VERBIO Vereinigte BioEnergie has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 680% 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 final note, we've found 2 warning signs for VERBIO Vereinigte BioEnergie that we think you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.