GVS (BIT:GVS) Knows How To Allocate Capital Effectively

There are a few key trends to look for if we want to identify the next multi-bagger. 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. So when we looked at the ROCE trend of GVS (BIT:GVS) we really liked what we saw.

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. Analysts use this formula to calculate it for GVS:

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

0.21 = €107m ÷ (€606m - €101m) (Based on the trailing twelve months to September 2021).

Thus, GVS has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Medical Equipment industry average of 16%.

See our latest analysis for GVS

Above you can see how the current ROCE for GVS compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for GVS.

What Can We Tell From GVS' ROCE Trend?

Investors would be pleased with what's happening at GVS. Over the last five years, returns on capital employed have risen substantially to 21%. Basically the business is earning more per dollar of capital invested and in addition to that, 296% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

All in all, it's terrific to see that GVS is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 35% in the last year. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

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

GVS is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.