Verallia Société Anonyme (EPA:VRLA) Is Experiencing Growth In Returns On Capital

By
Simply Wall St
Published
January 04, 2022
ENXTPA:VRLA
Source: Shutterstock

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, we've noticed some promising trends at Verallia Société Anonyme (EPA:VRLA) so let's look a bit deeper.

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 Verallia Société Anonyme, this is the formula:

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

0.18 = €454m ÷ (€3.5b - €1.0b) (Based on the trailing twelve months to June 2021).

Therefore, Verallia Société Anonyme has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 11% generated by the Packaging industry.

See our latest analysis for Verallia Société Anonyme

roce
ENXTPA:VRLA Return on Capital Employed January 4th 2022

Above you can see how the current ROCE for Verallia Société Anonyme compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Verallia Société Anonyme here for free.

The Trend Of ROCE

Verallia Société Anonyme is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last four years, the ROCE has climbed 124% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. 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.

The Key Takeaway

To bring it all together, Verallia Société Anonyme has done well to increase the returns it's generating from its capital employed. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 9.1% return over the last year. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Like most companies, Verallia Société Anonyme does come with some risks, and we've found 2 warning signs that you should be aware of.

While Verallia Société Anonyme 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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