Vantea SMART (BIT:VNT) Will Want To Turn Around Its Return Trends

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Vantea SMART (BIT:VNT), it didn't seem to tick all of these boxes.

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. To calculate this metric for Vantea SMART, this is the formula:

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

0.015 = €240k ÷ (€25m - €9.0m) (Based on the trailing twelve months to June 2024).

Thus, Vantea SMART has an ROCE of 1.5%. In absolute terms, that's a low return and it also under-performs the Software industry average of 7.8%.

See our latest analysis for Vantea SMART

Above you can see how the current ROCE for Vantea SMART 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 analyst report for Vantea SMART .

How Are Returns Trending?

On the surface, the trend of ROCE at Vantea SMART doesn't inspire confidence. Over the last four years, returns on capital have decreased to 1.5% from 19% four years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

What We Can Learn From Vantea SMART's ROCE

In summary, we're somewhat concerned by Vantea SMART's diminishing returns on increasing amounts of capital. We expect this has contributed to the stock plummeting 80% during the last three years. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

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

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.