VisionaryholdingsLtd (TYO:9263) Might Be Having Difficulty Using Its Capital Effectively

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at VisionaryholdingsLtd (TYO:9263) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 VisionaryholdingsLtd:

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

0.015 = JP¥178m ÷ (JP¥20b - JP¥8.7b) (Based on the trailing twelve months to January 2021).

So, VisionaryholdingsLtd has an ROCE of 1.5%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 9.3%.

View our latest analysis for VisionaryholdingsLtd

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

What The Trend Of ROCE Can Tell Us

We weren't thrilled with the trend because VisionaryholdingsLtd's ROCE has reduced by 87% over the last two years, while the business employed 58% more capital. That being said, VisionaryholdingsLtd raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with VisionaryholdingsLtd's earnings and if they change as a result from the capital raise.

On a side note, VisionaryholdingsLtd's current liabilities are still rather high at 42% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

In summary, VisionaryholdingsLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last three years, the stock has given away 50% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think VisionaryholdingsLtd has the makings of a multi-bagger.

If you want to continue researching VisionaryholdingsLtd, you might be interested to know about the 1 warning sign that our analysis has discovered.

While VisionaryholdingsLtd 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. 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.
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