What Do The Returns On Capital At Vogiatzoglou Systems (ATH:VOSYS) Tell Us?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Vogiatzoglou Systems (ATH:VOSYS), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Vogiatzoglou Systems:

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

0.07 = €1.3m ÷ (€30m - €11m) (Based on the trailing twelve months to June 2020).

So, Vogiatzoglou Systems has an ROCE of 7.0%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 11%.

See our latest analysis for Vogiatzoglou Systems

Historical performance is a great place to start when researching a stock so above you can see the gauge for Vogiatzoglou Systems' ROCE against it's prior returns. 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.

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Vogiatzoglou Systems in recent years. The company has consistently earned 7.0% for the last five years, and the capital employed within the business has risen 33% 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.

The Bottom Line

In summary, Vogiatzoglou Systems has simply been reinvesting capital and generating the same low rate of return as before. Yet to long term shareholders the stock has gifted them an incredible 127% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

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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