Why We Like The Returns At Vaibhav Global (NSE:VAIBHAVGBL)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Vaibhav Global's (NSE:VAIBHAVGBL) returns on capital, so let's have a look.

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. To calculate this metric for Vaibhav Global, this is the formula:

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

0.35 = ₹3.5b ÷ (₹14b - ₹4.1b) (Based on the trailing twelve months to March 2021).

So, Vaibhav Global has an ROCE of 35%. In absolute terms that's a great return and it's even better than the Luxury industry average of 9.6%.

Check out our latest analysis for Vaibhav Global

Historical performance is a great place to start when researching a stock so above you can see the gauge for Vaibhav Global's ROCE against it's prior returns. If you'd like to look at how Vaibhav Global has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Vaibhav Global's ROCE Trending?

We like the trends that we're seeing from Vaibhav Global. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 35%. The amount of capital employed has increased too, by 165%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a related note, the company's ratio of current liabilities to total assets has decreased to 29%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Key Takeaway

In summary, it's great to see that Vaibhav Global can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 1,803% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Vaibhav Global can keep these trends up, it could have a bright future ahead.

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

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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This article by Simply Wall St is general in nature. 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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