TT Vision Holdings Berhad (KLSE:TTVHB) Is Experiencing Growth In Returns On Capital

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at TT Vision Holdings Berhad (KLSE:TTVHB) and its trend of ROCE, we really 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. The formula for this calculation on TT Vision Holdings Berhad is:

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

0.081 = RM11m ÷ (RM149m - RM20m) (Based on the trailing twelve months to June 2024).

So, TT Vision Holdings Berhad has an ROCE of 8.1%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.4%.

See our latest analysis for TT Vision Holdings Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for TT Vision Holdings Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of TT Vision Holdings Berhad.

What Can We Tell From TT Vision Holdings Berhad's ROCE Trend?

TT Vision Holdings Berhad has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 8.1% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, TT Vision Holdings Berhad is utilizing 131% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On TT Vision Holdings Berhad's ROCE

To the delight of most shareholders, TT Vision Holdings Berhad has now broken into profitability. Given the stock has declined 27% in the last year, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing: We've identified 3 warning signs with TT Vision Holdings Berhad (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

While TT Vision Holdings Berhad 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. 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.