Returns On Capital Signal Tricky Times Ahead For Vantea SMART (BIT:VNT)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. In light of that, when we looked at Vantea SMART (BIT:VNT) and its ROCE trend, we weren't exactly thrilled.

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Understanding 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 Vantea SMART:

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

0.024 = €490k ÷ (€27m - €7.3m) (Based on the trailing twelve months to June 2024).

So, Vantea SMART has an ROCE of 2.4%. In absolute terms, that's a low return and it also under-performs the Software industry average of 8.5%.

Check out our latest analysis for Vantea SMART

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Vantea SMART has performed in the past in other metrics, you can view this free graph of Vantea SMART's past earnings, revenue and cash flow .

What Can We Tell From Vantea SMART's ROCE Trend?

In terms of Vantea SMART's historical ROCE movements, the trend isn't fantastic. Around four years ago the returns on capital were 19%, but since then they've fallen to 2.4%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

On a related note, Vantea SMART has decreased its current liabilities to 27% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Bottom Line On Vantea SMART's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Vantea SMART is reinvesting for growth and has higher sales as a result. Despite these promising trends, the stock has collapsed 86% over the last three years, so there could be other factors hurting the company's prospects. Therefore, we'd suggest researching the stock further to uncover more about the business.

One final note, you should learn about the 2 warning signs we've spotted with Vantea SMART (including 1 which is a bit concerning) .

While Vantea SMART isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.