Here's What's Concerning About Vico International Holdings' (HKG:1621) Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Vico International Holdings (HKG:1621) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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Return On Capital Employed (ROCE): What Is It?

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 Vico International Holdings, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.062 = HK$15m ÷ (HK$287m - HK$49m) (Based on the trailing twelve months to March 2025).

Thus, Vico International Holdings has an ROCE of 6.2%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.7%.

See our latest analysis for Vico International Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Vico International Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Vico International Holdings.

How Are Returns Trending?

When we looked at the ROCE trend at Vico International Holdings, we didn't gain much confidence. Around five years ago the returns on capital were 11%, but since then they've fallen to 6.2%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Vico International Holdings' ROCE

Bringing it all together, while we're somewhat encouraged by Vico International Holdings' reinvestment in its own business, we're aware that returns are shrinking. And investors may be recognizing these trends since the stock has only returned a total of 31% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Vico International Holdings does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

While Vico International Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.