Investors should be encouraged by the returns on capital of Vaibhav Global (NSE: VAIBHAVGBL)
Did you know that certain financial measures can provide clues about a potential multi-bagger? Among other things, we’ll want to see two things; first, a growth to recover on capital employed (ROCE) and on the other hand, an expansion of the amount capital employed. This shows us that it is a composing machine, capable of continually reinvesting its profits in the business and generating higher returns. Speaking of which, we have noticed some big changes in Vaibhav Global (NSE: VAIBHAVGBL) returns on capital, so let’s take a look.
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. The formula for this calculation on Vaibhav Global is:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.37 = 3.6b ÷ (₹ 14b – ₹ 4.1b) (Based on the last twelve months up to June 2021).
Therefore, Vaibhav Global has a ROCE of 37%. This is a fantastic return and not only that, it exceeds the 12% average earned by companies in a similar industry.
Check out our latest review for Vaibhav Global
In the graph above, we measured Vaibhav Global’s past ROCE against its past performance, but the future is arguably more important. If you like, you can view analyst forecasts covering Vaibhav Global here for free.
What does Vaibhav Global’s ROCE trend tell us?
Investors would be delighted with what is happening at Vaibhav Global. Data shows that returns on capital have increased dramatically over the past five years to reach 37%. The company actually makes more money per dollar of capital employed, and it should be noted that the amount of capital has also increased, by 165%. Increasing returns on an increasing amount of capital are common among multi-baggers and that is why we are impressed.
In another part of our analysis, we noticed that the ratio of the company’s current liabilities to total assets decreased to 29%, which means overall that the company relies less on its suppliers or its short-term creditors to finance its operations. Shareholders would therefore be delighted if the growth in returns was primarily driven by underlying business performance.
In summary, it’s great to see that Vaibhav Global can increase returns by systematically reinvesting capital at increasing rates of return, as these are some of the key ingredients in these highly sought-after multi-baggers. And a remarkable 1,176% total return over the past five years tells us that investors expect more good things to happen in the future. So, given that the stock has proven to have some promising trends, it is worth doing more research on the company to see if these trends are likely to continue.
On a separate note, we have found 2 warning signs for Vaibhav Global you will probably want to know more.
If you’d like to see other companies driving high returns, check out our free List of high yielding companies with strong balance sheets here.
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