Visdynamics Holdings Berhad (KLSE:VIS) Will Be Hoping To Turn Its Returns On Capital Around

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Although, when we looked at Visdynamics Holdings Berhad (KLSE:VIS), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Visdynamics Holdings Berhad:

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

0.069 = RM4.6m ÷ (RM75m - RM7.6m) (Based on the trailing twelve months to January 2024).

Therefore, Visdynamics Holdings Berhad has an ROCE of 6.9%. In absolute terms, that's a low return but it's around the Semiconductor industry average of 7.5%.

View our latest analysis for Visdynamics Holdings Berhad

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Visdynamics Holdings Berhad's past further, check out this free graph covering Visdynamics Holdings Berhad's past earnings, revenue and cash flow.

So How Is Visdynamics Holdings Berhad's ROCE Trending?

In terms of Visdynamics Holdings Berhad's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 22% over the last five years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line

We're a bit apprehensive about Visdynamics Holdings Berhad because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Since the stock has skyrocketed 124% over the last five years, it looks like investors have high expectations of the stock. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

Visdynamics Holdings Berhad does have some risks though, and we've spotted 2 warning signs for Visdynamics Holdings Berhad that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.

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