Returns On Capital At Voltalia (EPA:VLTSA) Have Stalled

There are a few key trends to look for if we want to identify the next 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Voltalia (EPA:VLTSA), it didn't seem to tick all of these boxes.

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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. To calculate this metric for Voltalia, this is the formula:

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

0.022 = €70m ÷ (€4.0b - €850m) (Based on the trailing twelve months to December 2024).

Thus, Voltalia has an ROCE of 2.2%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 7.2%.

Check out our latest analysis for Voltalia

Above you can see how the current ROCE for Voltalia compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Voltalia .

The Trend Of ROCE

There are better returns on capital out there than what we're seeing at Voltalia. The company has consistently earned 2.2% for the last five years, and the capital employed within the business has risen 123% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On Voltalia's ROCE

In conclusion, Voltalia has been investing more capital into the business, but returns on that capital haven't increased. And in the last five years, the stock has given away 66% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Like most companies, Voltalia does come with some risks, and we've found 1 warning sign that you should be aware of.

While Voltalia may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.