Returns Are Gaining Momentum At Viro Tvornica Secera d.d (ZGSE:VIRO)

Did you know there are some financial metrics that can provide clues of a potential 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 Viro Tvornica Secera d.d (ZGSE:VIRO) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Viro Tvornica Secera d.d:

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

0.033 = Kn9.0m ÷ (Kn485m - Kn216m) (Based on the trailing twelve months to September 2021).

Thus, Viro Tvornica Secera d.d has an ROCE of 3.3%. In absolute terms, that's a low return and it also under-performs the Food industry average of 4.7%.

View our latest analysis for Viro Tvornica Secera d.d

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 Viro Tvornica Secera d.d has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

It's great to see that Viro Tvornica Secera d.d has started to generate some pre-tax earnings from prior investments. While the business is profitable now, it used to be incurring losses on invested capital five years ago. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 60%. This could potentially mean that the company is selling some of its assets.

Another thing to note, Viro Tvornica Secera d.d has a high ratio of current liabilities to total assets of 45%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

In a nutshell, we're pleased to see that Viro Tvornica Secera d.d has been able to generate higher returns from less capital. And since the stock has dived 93% over the last five years, there may be other factors affecting the company's prospects. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

Viro Tvornica Secera d.d does come with some risks though, we found 4 warning signs in our investment analysis, and 3 of those shouldn't be ignored...

While Viro Tvornica Secera d.d 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.

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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