VA Tech Wabag (NSE:WABAG)’s return trends are unattractive

If you’re not sure where to start when searching for your next multi-bagger, there are a few key trends to keep an eye on. Ideally, your business will have two trends: First, it’s growing. return Return on Invested Capital (ROCE) and secondly, amount Simply put, these types of businesses are compound interest machines, meaning they continually reinvest their profits at high rates of return. VA Techwa Bag (NSE:WABAG) We feel good about the ROCE trend.

What is Return on Invested Capital (ROCE)?

For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (revenue) relative to the capital employed in the business. The formula for calculating this metric for VA Tech Wabag is:

Return on Invested Capital = Earnings Before Interest and Taxes (EBIT) ÷ (Total Assets – Current Liabilities)

0.15 = 370 million yen ÷ (46 billion yen – 22 billion yen) (Based on the trailing 12 months ending March 2024).

therefore, VA Tech Wabag has an ROCE of 15%. In absolute terms, this is a satisfactory return, but it compares favourably with the water utilities industry average of 6.9%.

View our latest analysis for VA Tech Wabag

In the chart above we compare VA Tech Wabag’s historical ROCE with its past performance, but the future is arguably more important – if you’d like you can check out the forecasts from the analysts covering VA Tech Wabag. free.

So how is VA Tech Wabag’s ROCE trending?

Return on capital is good but not very volatile. Over the past five years, ROCE has remained relatively flat at around 15%, with the company deploying over 78% of its capital in its business operations. 15% is a fairly standard return and it’s reassuring to see VA Tech Wabag earning this amount consistently. Earning such a return over the long term may not be all that appealing, but if consistent it could be rewarded in terms of share price returns.

As an aside, VA Tech Wabag has managed to reduce its current liabilities to 47% of its total assets over the past five years. In effect, suppliers are putting less capital into the business, reducing some of the risk factor. However, it is still quite high at the moment, so we expect this trend to continue.

Our take on VA Tech Wabag’s ROCE

The main thing to remember is that VA Tech Wabag has proven its ability to continually reinvest at high rates of return, and long term investors will be ecstatic to have earned a 387% return over the past five years. Therefore, while investors may want to take the positive underlying trends into account, we still think this stock is worth continuing to look into.

VATech Wabag doesn’t stand out much in this regard, but it’s still worth looking at whether the company is trading at an attractive price. Free estimate of WABAG’s intrinsic value On our platform.

For those who want to invest A solid company, Check this out free A list of companies with strong balance sheets and high return on equity.

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This article by Simply Wall St is general in nature. We use only unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives, or your financial situation. We seek to provide long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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