Returns Are Gaining Momentum At Vogiatzoglou Systems (ATH:VOSYS)

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Vogiatzoglou Systems' (ATH:VOSYS) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Vogiatzoglou Systems, this is the formula:

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

0.042 = €832k ÷ (€26m - €5.5m) (Based on the trailing twelve months to December 2020).

Therefore, Vogiatzoglou Systems has an ROCE of 4.2%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 13%.

See our latest analysis for Vogiatzoglou Systems

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Vogiatzoglou Systems' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Vogiatzoglou Systems' ROCE Trend?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 4.2%. Basically the business is earning more per dollar of capital invested and in addition to that, 32% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Vogiatzoglou Systems' ROCE

All in all, it's terrific to see that Vogiatzoglou Systems is reaping the rewards from prior investments and is growing its capital base. And with a respectable 63% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Vogiatzoglou Systems can keep these trends up, it could have a bright future ahead.

Vogiatzoglou Systems does have some risks though, and we've spotted 3 warning signs for Vogiatzoglou Systems that you might be interested in.

While Vogiatzoglou Systems 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. 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.
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