The Returns On Capital At Vitasoy International Holdings (HKG:345) Don't Inspire Confidence

What financial metrics can indicate to us that a company is maturing or even in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. On that note, looking into Vitasoy International Holdings (HKG:345), we weren't too upbeat about how things were going.

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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. The formula for this calculation on Vitasoy International Holdings is:

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

0.10 = HK$350m ÷ (HK$5.6b - HK$2.1b) (Based on the trailing twelve months to March 2025).

So, Vitasoy International Holdings has an ROCE of 10.0%. In absolute terms, that's a low return but it's around the Food industry average of 11%.

See our latest analysis for Vitasoy International Holdings

In the above chart we have measured Vitasoy International Holdings' 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 Vitasoy International Holdings .

What The Trend Of ROCE Can Tell Us

We are a bit worried about the trend of returns on capital at Vitasoy International Holdings. To be more specific, the ROCE was 19% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Vitasoy International Holdings to turn into a multi-bagger.

Our Take On Vitasoy International Holdings' ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Unsurprisingly then, the stock has dived 74% over the last five years, so investors are recognizing these changes and don't like the company's prospects. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

If you're still interested in Vitasoy International Holdings it's worth checking out our FREE intrinsic value approximation for 345 to see if it's trading at an attractive price in other respects.

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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.