Returns On Capital Are Showing Encouraging Signs At Vimian Group (STO:VIMIAN)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Vimian Group's (STO:VIMIAN) 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. Analysts use this formula to calculate it for Vimian Group:

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

0.051 = €39m ÷ (€922m - €156m) (Based on the trailing twelve months to December 2022).

Thus, Vimian Group has an ROCE of 5.1%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 8.3%.

Check out our latest analysis for Vimian Group

In the above chart we have measured Vimian Group'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 Vimian Group here for free.

What Does the ROCE Trend For Vimian Group Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last four years to 5.1%. Basically the business is earning more per dollar of capital invested and in addition to that, 2,645% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Vimian Group's ROCE

All in all, it's terrific to see that Vimian Group is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 50% in the last year. So researching this company further and determining whether or not these trends will continue seems justified.

Like most companies, Vimian Group does come with some risks, and we've found 2 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.