Zignago Vetro (BIT:ZV) Is Doing The Right Things To Multiply Its Share Price

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Zignago Vetro's (BIT:ZV) returns on capital, so let's have a look.

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. The formula for this calculation on Zignago Vetro is:

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

0.16 = €92m ÷ (€789m - €226m) (Based on the trailing twelve months to June 2023).

Thus, Zignago Vetro has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 12% generated by the Packaging industry.

View our latest analysis for Zignago Vetro

In the above chart we have measured Zignago Vetro's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Zignago Vetro here for free.

What Does the ROCE Trend For Zignago Vetro Tell Us?

Investors would be pleased with what's happening at Zignago Vetro. Over the last five years, returns on capital employed have risen substantially to 16%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 77%. So we're very much inspired by what we're seeing at Zignago Vetro thanks to its ability to profitably reinvest capital.

What We Can Learn From Zignago Vetro's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Zignago Vetro has. Since the stock has returned a solid 77% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One final note, you should learn about the 2 warning signs we've spotted with Zignago Vetro (including 1 which is potentially serious) .

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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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.