Investors Met With Slowing Returns on Capital At Zignago Vetro (BIT:ZV)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Zignago Vetro (BIT:ZV) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for Zignago Vetro:

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

0.095 = €38m ÷ (€589m - €187m) (Based on the trailing twelve months to June 2021).

So, Zignago Vetro has an ROCE of 9.5%. On its own, that's a low figure but it's around the 12% average generated by the Packaging industry.

Check out our latest analysis for Zignago Vetro

Above you can see how the current ROCE for Zignago Vetro compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Zignago Vetro Tell Us?

In terms of Zignago Vetro's historical ROCE trend, it doesn't exactly demand attention. The company has employed 56% more capital in the last five years, and the returns on that capital have remained stable at 9.5%. 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.

Our Take On Zignago Vetro's ROCE

Long story short, while Zignago Vetro has been reinvesting its capital, the returns that it's generating haven't increased. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 285% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One more thing, we've spotted 1 warning sign facing Zignago Vetro that you might find interesting.

While Zignago Vetro may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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