Vogiatzoglou Systems (ATH:VOSYS) Is Looking To Continue Growing Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Vogiatzoglou Systems (ATH:VOSYS) and its trend of ROCE, we really liked what we saw.

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 Vogiatzoglou Systems, this is the formula:

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

0.083 = €1.7m ÷ (€27m - €6.1m) (Based on the trailing twelve months to June 2021).

Thus, Vogiatzoglou Systems has an ROCE of 8.3%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 14%.

View 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'd like to look at how Vogiatzoglou Systems has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Vogiatzoglou Systems' ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 8.3%. The amount of capital employed has increased too, by 35%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

To sum it up, Vogiatzoglou Systems has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 93% 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. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching Vogiatzoglou Systems, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Vogiatzoglou Systems 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.