We Like These Underlying Return On Capital Trends At Volution Group (LON:FAN)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So on that note, Volution Group (LON:FAN) looks quite promising in regards to its trends of return on capital.

Understanding 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. The formula for this calculation on Volution Group is:

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

0.15 = UK£50m ÷ (UK£411m - UK£70m) (Based on the trailing twelve months to July 2022).

Thus, Volution Group has an ROCE of 15%. By itself that's a normal return on capital and it's in line with the industry's average returns of 15%.

See our latest analysis for Volution Group

Above you can see how the current ROCE for Volution Group 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 Volution Group here for free.

So How Is Volution Group's ROCE Trending?

Volution Group is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 15%. The amount of capital employed has increased too, by 49%. So we're very much inspired by what we're seeing at Volution Group thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that Volution Group is reaping the rewards from prior investments and is growing its capital base. And a remarkable 122% total return over the last five years tells us that investors are expecting more good things to come in the future. 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 1 warning sign for Volution Group that we think you should be aware of.

While Volution Group 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.