N. Varveris-Moda Bagno's (ATH:MODA) Returns On Capital Are Heading Higher

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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 on that note, N. Varveris-Moda Bagno (ATH:MODA) 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. To calculate this metric for N. Varveris-Moda Bagno, this is the formula:

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

0.12 = €3.7m ÷ (€44m - €13m) (Based on the trailing twelve months to December 2021).

Thus, N. Varveris-Moda Bagno has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Specialty Retail industry average of 6.9% it's much better.

View our latest analysis for N. Varveris-Moda Bagno

Historical performance is a great place to start when researching a stock so above you can see the gauge for N. Varveris-Moda Bagno's ROCE against it's prior returns. If you're interested in investigating N. Varveris-Moda Bagno's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

N. Varveris-Moda Bagno is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 1,063% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On N. Varveris-Moda Bagno's ROCE

To sum it up, N. Varveris-Moda Bagno is collecting higher returns from the same amount of capital, and that's impressive. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 24% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you'd like to know about the risks facing N. Varveris-Moda Bagno, we've discovered 2 warning signs that you should be aware of.

While N. Varveris-Moda Bagno 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.