Vimian Group (STO:VIMIAN) Is Experiencing Growth In Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Vimian Group (STO:VIMIAN) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed 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)

0.059 = €55m ÷ (€1.0b - €81m) (Based on the trailing twelve months to September 2023).

Therefore, Vimian Group has an ROCE of 5.9%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 8.8%.

See 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

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 numbers show that in the last four years, the returns generated on capital employed have grown considerably to 5.9%. The amount of capital employed has increased too, by 1,448%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 8.0%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Vimian Group has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Vimian Group's ROCE

To sum it up, Vimian Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has only returned 2.9% to shareholders over the last year, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you'd like to know more about Vimian Group, we've spotted 2 warning signs, and 1 of them is potentially serious.

While Vimian Group 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.