Investors Met With Slowing Returns on Capital At VNE (BIT:VNE)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. However, after investigating VNE (BIT:VNE), we don't think it's current trends fit the mold of a multi-bagger.

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Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for VNE, this is the formula:

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

0.0086 = €164k ÷ (€29m - €9.5m) (Based on the trailing twelve months to December 2024).

So, VNE has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Tech industry average of 7.9%.

Check out our latest analysis for VNE

In the above chart we have measured VNE'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 VNE for free.

How Are Returns Trending?

There are better returns on capital out there than what we're seeing at VNE. The company has employed 51% more capital in the last three years, and the returns on that capital have remained stable at 0.9%. 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.

The Key Takeaway

In conclusion, VNE has been investing more capital into the business, but returns on that capital haven't increased. Unsurprisingly, the stock has only gained 6.1% over the last year, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

On a final note, we've found 3 warning signs for VNE that we think you should be aware of.

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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.