Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we’ll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it’s a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Vaibhav Global (NSE:VAIBHAVGBL), we don’t think it’s current trends fit the mold of a multi-bagger.
Return On Capital Employed (ROCE): What Is It?
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. The formula for this calculation on Vaibhav Global is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.13 = ₹1.7b ÷ (₹18b – ₹5.2b) (Based on the trailing twelve months to December 2023).
Therefore, Vaibhav Global has an ROCE of 13%. On its own, that’s a standard return, however it’s much better than the 11% generated by the Luxury industry.
Check out our latest analysis for Vaibhav Global
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 Vaibhav Global has performed in the past in other metrics, you can view this free graph of Vaibhav Global’s past earnings, revenue and cash flow.
The Trend Of ROCE
In terms of Vaibhav Global’s historical ROCE movements, the trend isn’t fantastic. To be more specific, ROCE has fallen from 29% over the last five years. However it looks like Vaibhav Global might be reinvesting for long term growth because while capital employed has increased, the company’s sales haven’t changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.
Our Take On Vaibhav Global’s ROCE
In summary, Vaibhav Global is reinvesting funds back into the business for growth but unfortunately it looks like sales haven’t increased much just yet. Yet to long term shareholders the stock has gifted them an incredible 240% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn’t get our hopes up too high.
If you’d like to know more about Vaibhav Global, we’ve spotted 2 warning signs, and 1 of them doesn’t sit too well with us.
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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Find out whether Vaibhav Global is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.
