Here's What To Make Of Vértice Trescientos Sesenta Grados' (BME:VER) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Vértice Trescientos Sesenta Grados (BME:VER), we don't think it's current trends fit the mold of a multi-bagger.

What is 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. Analysts use this formula to calculate it for Vértice Trescientos Sesenta Grados:

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

0.024 = €1.2m ÷ (€66m - €14m) (Based on the trailing twelve months to September 2020).

Therefore, Vértice Trescientos Sesenta Grados has an ROCE of 2.4%. Ultimately, that's a low return and it under-performs the Entertainment industry average of 13%.

See our latest analysis for Vértice Trescientos Sesenta Grados

In the above chart we have measured Vértice Trescientos Sesenta Grados' 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 Vértice Trescientos Sesenta Grados here for free.

How Are Returns Trending?

When we looked at the ROCE trend at Vértice Trescientos Sesenta Grados, we didn't gain much confidence. To be more specific, ROCE has fallen from 16% over the last two years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

On a related note, Vértice Trescientos Sesenta Grados has decreased its current liabilities to 22% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that Vértice Trescientos Sesenta Grados is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 56% over the last three years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

One final note, you should learn about the 3 warning signs we've spotted with Vértice Trescientos Sesenta Grados (including 1 which is concerning) .

While Vértice Trescientos Sesenta Grados 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. 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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