Ventia Services Group (ASX:VNT) Is Investing Its Capital With Increasing Efficiency

Yahoo

17-03-2025

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 Ventia Services Group's (ASX:VNT) returns on capital, so let's have a look.
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 Ventia Services Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.21 = AU$358m ÷ (AU$2.9b - AU$1.2b) (Based on the trailing twelve months to December 2024).
Therefore, Ventia Services Group has an ROCE of 21%. In absolute terms that's a very respectable return and compared to the Construction industry average of 17% it's pretty much on par.
View our latest analysis for Ventia Services Group
In the above chart we have measured Ventia Services Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Ventia Services Group .
The trends we've noticed at Ventia Services Group are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 21%. Basically the business is earning more per dollar of capital invested and in addition to that, 64% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
Another thing to note, Ventia Services Group has a high ratio of current liabilities to total assets of 41%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Ventia Services Group has. And a remarkable 102% total return over the last three years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
On a separate note, we've found 1 warning sign for Ventia Services Group you'll probably want to know about.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
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