Yahoo Finance Here’s What’s Happening With Returns At UniVision Engineering (LON:UVEL)
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in UniVision Engineering's (LON:UVEL) returns on capital, so let's have a look.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for UniVision Engineering, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.056 = UK£504k ÷ (UK£14m - UK£5.4m) (Based on the trailing twelve months to September 2020).
Thus, UniVision Engineering has an ROCE of 5.6%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 7.2%.
View our latest analysis for UniVision Engineering
Historical performance is a great place to start when researching a stock so above you can see the gauge for UniVision Engineering's ROCE against it's prior returns. If you're interested in investigating UniVision Engineering's past further, check out this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
UniVision Engineering has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 5.6% on its capital. In addition to that, UniVision Engineering is employing 70% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
The Key Takeaway
Overall, UniVision Engineering gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if UniVision Engineering can keep these trends up, it could have a bright future ahead.
UniVision Engineering does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...
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.
This article by Simply Wall St is general in nature. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
