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. 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 Vision's (TSE:9416) trend of ROCE, we really liked what we saw.
We've discovered 2 warning signs about Vision. View them for free.Return On Capital Employed (ROCE): What Is It?
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. The formula for this calculation on Vision is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.29 = JP¥5.4b ÷ (JP¥25b - JP¥6.7b) (Based on the trailing twelve months to December 2024).
Therefore, Vision has an ROCE of 29%. That's a fantastic return and not only that, it outpaces the average of 17% earned by companies in a similar industry.
View our latest analysis for Vision
In the above chart we have measured Vision's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Vision for free.
The Trend Of ROCE
We'd be pretty happy with returns on capital like Vision. The company has consistently earned 29% for the last five years, and the capital employed within the business has risen 70% in that time. Now considering ROCE is an attractive 29%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. You'll see this when looking at well operated businesses or favorable business models.
In Conclusion...
In short, we'd argue Vision has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. However, over the last five years, the stock has only delivered a 34% return to shareholders who held over that period. So to determine if Vision is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.
If you'd like to know more about Vision, we've spotted 2 warning signs, and 1 of them is a bit unpleasant.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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.