Is There More Growth In Store For Vedan International (Holdings)'s (HKG:2317) Returns On Capital?

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Vedan International (Holdings) (HKG:2317) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Vedan International (Holdings) is:

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

0.055 = US$17m ÷ (US$375m - US$62m) (Based on the trailing twelve months to June 2020).

Thus, Vedan International (Holdings) has an ROCE of 5.5%. Ultimately, that's a low return and it under-performs the Food industry average of 13%.

Check out our latest analysis for Vedan International (Holdings)

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Vedan International (Holdings)'s past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Vedan International (Holdings) Tell Us?

Vedan International (Holdings) is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 394% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On Vedan International (Holdings)'s ROCE

In summary, we're delighted to see that Vedan International (Holdings) has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 169% to shareholders over the last five years, it looks like investors are recognizing these changes. 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 3 warning signs for Vedan International (Holdings) you'll probably want to know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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