Can Brodogradiliste Viktor Lenac d.d (ZGSE:VLEN) Continue To Grow Its Returns On Capital?

By
Simply Wall St
Published
March 11, 2021
ZGSE:VLEN
Source: Shutterstock

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 Brodogradiliste Viktor Lenac d.d's (ZGSE:VLEN) returns on capital, so let's have a look.

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

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. To calculate this metric for Brodogradiliste Viktor Lenac d.d, this is the formula:

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

0.17 = Kn56m ÷ (Kn409m - Kn82m) (Based on the trailing twelve months to December 2020).

So, Brodogradiliste Viktor Lenac d.d has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 8.4% it's much better.

View our latest analysis for Brodogradiliste Viktor Lenac d.d

roce
ZGSE:VLEN Return on Capital Employed March 12th 2021

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 Brodogradiliste Viktor Lenac d.d's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Brodogradiliste Viktor Lenac d.d has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 17% on its capital, because one year ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

The Bottom Line On Brodogradiliste Viktor Lenac d.d's ROCE

To bring it all together, Brodogradiliste Viktor Lenac d.d has done well to increase the returns it's generating from its capital employed. Since the stock has returned a solid 67% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Brodogradiliste Viktor Lenac d.d can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 2 warning signs facing Brodogradiliste Viktor Lenac d.d that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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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