Returns On Capital At Vinda International Holdings (HKG:3331) Have Stalled

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. So, when we ran our eye over Vinda International Holdings' (HKG:3331) trend of ROCE, we liked what we saw.

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. Analysts use this formula to calculate it for Vinda International Holdings:

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

0.11 = HK$2.0b ÷ (HK$24b - HK$6.6b) (Based on the trailing twelve months to December 2021).

So, Vinda International Holdings has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Household Products industry average of 8.6% it's much better.

See our latest analysis for Vinda International Holdings

In the above chart we have measured Vinda International Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Vinda International Holdings' ROCE Trending?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 11% and the business has deployed 61% more capital into its operations. 11% is a pretty standard return, and it provides some comfort knowing that Vinda International Holdings has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

To sum it up, Vinda International Holdings has simply been reinvesting capital steadily, at those decent rates of return. In light of this, the stock has only gained 27% over the last five years for shareholders who have owned the stock in this period. So to determine if Vinda International Holdings is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Vinda International Holdings could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While Vinda 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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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.