Voltamp Transformers (NSE:VOLTAMP) Hasn't Managed To Accelerate Its Returns

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Voltamp Transformers (NSE:VOLTAMP) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Voltamp Transformers, this is the formula:

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

0.085 = ₹718m ÷ (₹9.1b - ₹653m) (Based on the trailing twelve months to June 2021).

So, Voltamp Transformers has an ROCE of 8.5%. On its own, that's a low figure but it's around the 9.9% average generated by the Electrical industry.

View our latest analysis for Voltamp Transformers

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

What The Trend Of ROCE Can Tell Us

In terms of Voltamp Transformers' historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 8.5% and the business has deployed 79% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

In Conclusion...

In conclusion, Voltamp Transformers has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 91% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to continue researching Voltamp Transformers, you might be interested to know about the 2 warning signs that our analysis has discovered.

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. 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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