Returns On Capital At Veto Switchgears and Cables (NSE:VETO) Have Hit The Brakes

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. With that in mind, the ROCE of Veto Switchgears and Cables (NSE:VETO) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Veto Switchgears and Cables, this is the formula:

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

0.13 = ₹329m ÷ (₹3.1b - ₹500m) (Based on the trailing twelve months to March 2024).

Thus, Veto Switchgears and Cables has an ROCE of 13%. In absolute terms, that's a pretty standard return but compared to the Electrical industry average it falls behind.

Check out our latest analysis for Veto Switchgears and Cables

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 Veto Switchgears and Cables' past further, check out this free graph covering Veto Switchgears and Cables' past earnings, revenue and cash flow.

What Does the ROCE Trend For Veto Switchgears and Cables Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 52% more capital in the last five years, and the returns on that capital have remained stable at 13%. Since 13% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

In the end, Veto Switchgears and Cables has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 68% to shareholders over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Veto Switchgears and Cables does have some risks though, and we've spotted 2 warning signs for Veto Switchgears and Cables that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.