Yahoo Finance Returns Are Gaining Momentum At Vmoto (ASX:VMT)
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Vmoto (ASX:VMT) looks quite promising in regards to its trends of return on capital.
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 Vmoto:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.084 = AU$6.8m ÷ (AU$96m - AU$16m) (Based on the trailing twelve months to December 2023).
Therefore, Vmoto has an ROCE of 8.4%. On its own, that's a low figure but it's around the 9.8% average generated by the Auto industry.
Check out our latest analysis for Vmoto
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Vmoto has performed in the past in other metrics, you can view this free graph of Vmoto's past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
Vmoto has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 8.4% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Vmoto is utilizing 426% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 17%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.
The Bottom Line On Vmoto's ROCE
Long story short, we're delighted to see that Vmoto's reinvestment activities have paid off and the company is now profitable. And a remarkable 101% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Vmoto can keep these trends up, it could have a bright future ahead.
If you'd like to know more about Vmoto, we've spotted 3 warning signs, and 1 of them is potentially serious.
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.
