Returns On Capital Are Showing Encouraging Signs At Vedan International (Holdings) (HKG:2317)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Vedan International (Holdings) (HKG:2317) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Vedan International (Holdings):

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

0.082 = US$26m ÷ (US$387m - US$65m) (Based on the trailing twelve months to December 2020).

Thus, Vedan International (Holdings) has an ROCE of 8.2%. 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)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Vedan International (Holdings)'s ROCE against it's prior returns. If you'd like to look at how Vedan International (Holdings) has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Vedan International (Holdings)'s ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 31% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. 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. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 78% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

One final note, you should learn about the 2 warning signs we've spotted with Vedan International (Holdings) (including 1 which shouldn't be ignored) .

While Vedan International (Holdings) may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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