Should You Be Impressed By VIGO System's (WSE:VGO) Returns on Capital?

By
Simply Wall St
Published
March 03, 2021
WSE:VGO
Source: Shutterstock

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 VIGO System (WSE:VGO) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for VIGO System, this is the formula:

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

0.14 = zł17m ÷ (zł140m - zł13m) (Based on the trailing twelve months to September 2020).

So, VIGO System has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Electronic industry average of 13%.

See our latest analysis for VIGO System

roce
WSE:VGO Return on Capital Employed March 4th 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for VIGO System's ROCE against it's prior returns. If you're interested in investigating VIGO System's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From VIGO System's ROCE Trend?

In terms of VIGO System's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 31% over the last five years. 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. If these investments prove successful, this can bode very well for long term stock performance.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that VIGO System is reinvesting for growth and has higher sales as a result. And long term investors must be optimistic going forward because the stock has returned a huge 220% to shareholders in the last five years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

VIGO System could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020


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