Returns to Zignago Vetro (BIT:ZV) seem to be weighed down
What trends should we look for if we want to identify stocks that can multiply in value over the long term? Among other things, we will want to see two things; first, growth to return to on capital employed (ROCE) and on the other hand, an expansion of the amount capital employed. Basically, this means that a business has profitable initiatives that it can continue to reinvest in, which is a hallmark of a blending machine. With this in mind, the ROCE of Zignago Vetro (BIT:ZV) looks decent right now, so let’s see what the trend in returns can tell us.
Understanding return on capital employed (ROCE)
For those unaware, ROCE is a measure of a company’s annual pre-tax profit (yield), relative to the capital employed in the business. The formula for this calculation on Zignago Vetro is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.10 = €44m ÷ (€604m – €189m) (Based on the last twelve months to September 2021).
Thereby, Zignago Vetro has a ROCE of 10%. This is a fairly standard return and is in line with the industry average of 9.8%.
Check out our latest analysis for Zignago Vetro
In the chart above, we measured Zignago Vetro’s past ROCE against its past performance, but the future is arguably more important. If you’re interested, you can check out analyst forecasts in our free analyst forecast report for the company.
What is the return trend?
While current capital returns are decent, they haven’t changed much. Over the past five years, ROCE has remained relatively stable at around 10% and the company has deployed 60% more capital into its operations. Since 10% is a moderate ROCE, it’s good to see that a company can continue to reinvest at these decent rates of return. Over long periods of time, returns like these may not be too exciting, but with consistency they can pay off in terms of stock price performance.
The Key Takeaway
In the end, Zignago Vetro has proven its ability to adequately reinvest capital at good rates of return. And long-term investors would be delighted with the 122% return they’ve received over the past five years. So while the stock may be more “expensive” than it was before, we believe the strong fundamentals warrant this stock for further research.
If you want to further research Zignago Vetro, you may be interested to know the 2 warning signs that our analysis found.
If you want to look for strong companies with excellent earnings, check out this free list of companies with strong balance sheets and impressive returns on equity.
Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.