Yahoo Finance We Like These Underlying Return On Capital Trends At Veris (ASX:VRS)
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Veris (ASX:VRS) looks quite promising in regards to its trends of return on capital.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Veris is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.025 = AU$1.2m ÷ (AU$66m - AU$21m) (Based on the trailing twelve months to December 2023).
Thus, Veris has an ROCE of 2.5%. Ultimately, that's a low return and it under-performs the Professional Services industry average of 15%.
See our latest analysis for Veris
Historical performance is a great place to start when researching a stock so above you can see the gauge for Veris' ROCE against it's prior returns. If you'd like to look at how Veris has performed in the past in other metrics, you can view this free graph of Veris' past earnings, revenue and cash flow.
So How Is Veris' ROCE Trending?
We're delighted to see that Veris is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 2.5%, which is always encouraging. While returns have increased, the amount of capital employed by Veris has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.
Our Take On Veris' ROCE
In summary, we're delighted to see that Veris has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 24% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
On a separate note, we've found 2 warning signs for Veris you'll probably want to know about.
While Veris may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.
