Veto Switchgears and Cables' (NSE:VETO) Returns Have Hit A Wall

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Veto Switchgears and Cables (NSE:VETO) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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What Is 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)

0.089 = ₹237m ÷ (₹3.2b - ₹498m) (Based on the trailing twelve months to December 2024).

Therefore, Veto Switchgears and Cables has an ROCE of 8.9%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 19%.

See our latest analysis for Veto Switchgears and Cables

Historical performance is a great place to start when researching a stock so above you can see the gauge for Veto Switchgears and Cables' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Veto Switchgears and Cables.

What Can We Tell From Veto Switchgears and Cables' ROCE Trend?

There are better returns on capital out there than what we're seeing at Veto Switchgears and Cables. Over the past five years, ROCE has remained relatively flat at around 8.9% and the business has deployed 55% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

What We Can Learn From Veto Switchgears and Cables' ROCE

As we've seen above, Veto Switchgears and Cables' returns on capital haven't increased but it is reinvesting in the business. Yet to long term shareholders the stock has gifted them an incredible 286% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

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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.