Stock Analysis

Some Investors May Be Worried About Veridis Environment's (TLV:VRDS) Returns On Capital

TASE:VRDS
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What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Veridis Environment (TLV:VRDS), it didn't seem to tick all of these boxes.

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

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. The formula for this calculation on Veridis Environment is:

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

0.057 = ₪77m ÷ (₪1.8b - ₪434m) (Based on the trailing twelve months to March 2022).

Therefore, Veridis Environment has an ROCE of 5.7%. Even though it's in line with the industry average of 5.7%, it's still a low return by itself.

See our latest analysis for Veridis Environment

roce
TASE:VRDS Return on Capital Employed July 15th 2022

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 Veridis Environment has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Veridis Environment Tell Us?

When we looked at the ROCE trend at Veridis Environment, we didn't gain much confidence. Over the last two years, returns on capital have decreased to 5.7% from 7.7% two years ago. However it looks like Veridis Environment might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Veridis Environment's ROCE

To conclude, we've found that Veridis Environment is reinvesting in the business, but returns have been falling. Unsurprisingly then, the total return to shareholders over the last year has been flat. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you want to continue researching Veridis Environment, you might be interested to know about the 3 warning signs that our analysis has discovered.

While Veridis Environment 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.

Valuation is complex, but we're helping make it simple.

Find out whether Veridis Environment is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.