Here’s what to do with the decelerating Vascon Engineers (NSE: VASCONEQ) rates of return
Did you know that certain financial measures can provide clues about a potential multi-bagger? A common approach is to try to find a business with Return on capital employed (ROCE) which increases, in connection with growth quantity capital employed. This shows us that it is a composing machine, capable of continually reinvesting its profits into the business and generating higher returns. Although, when we considered Vascon engineers (NSE: VASCONEQ), he didn’t seem to tick all of those boxes.
What is Return on Employee Capital (ROCE)?
Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. Analysts use this formula to calculate it for Vascon engineers:
Return on capital employed = Profit before interest and taxes (EBIT) Ã· (Total assets – Current liabilities)
0.025 = â¹ 194m Ã· (â¹ 14b – â¹ 6.0b) (Based on the last twelve months up to September 2021).
Therefore, Vascon Engineers has a ROCE of 2.5%. At the end of the day, that’s a low return and it’s below the construction industry average of 9.9%.
Check out our latest review for Vascon engineers
Although the past is not representative of the future, it can be useful to know the historical performance of a company, which is why we have this graph above. If you want to look at the performance of Vascon Engineers in the past in other metrics, you can check out this free graph of past income, income and cash flow.
What can we say about the ROCE trend of Vascon Engineers?
Things have been fairly stable at Vascon Engineers, with its capital employed and returns on that capital remaining roughly the same over the past five years. Companies with these characteristics tend to be mature and stable operations as they are past the growth phase. So don’t be surprised if Vascon Engineers won’t become a multi-bagger in a few years.
Another thing to note, Vascon Engineers has a high ratio of current liabilities to total assets of 43%. This can lead to some risks as the business is basically operating with quite a lot of dependence on its suppliers or other types of short term creditors. While this isn’t necessarily a bad thing, it can be beneficial if this ratio is lower.
What we can learn from the ROCE of Vascon engineers
We can conclude that when it comes to Vascon Engineers returns on capital employed and trends, there is not much change to report. Given that the stock has lost 12% over the past five years, investors may not be overly optimistic that this trend will improve. Overall, we’re not too inspired by the underlying trends and think there might be more chances to find a multi-bagger elsewhere.
Like most companies, Vascon Engineers carries certain risks, and we have found 2 warning signs that you need to be aware of.
If you want to look for solid businesses with great income, check out this free list of companies with good balance sheets and impressive returns on equity.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.