What Can The Trends At Visdynamics Holdings Berhad (KLSE:VIS) Tell Us About Their Returns?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. Speaking of which, we noticed some great changes in Visdynamics Holdings Berhad's (KLSE:VIS) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its 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)

0.056 = RM2.6m ÷ (RM57m - RM11m) (Based on the trailing twelve months to October 2020).

Therefore, Visdynamics Holdings Berhad has an ROCE of 5.6%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 12%.

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 want to delve into the historical earnings, revenue and cash flow of Visdynamics Holdings Berhad, check out these free graphs here.

What Does the ROCE Trend For Visdynamics Holdings Berhad Tell Us?

The fact that Visdynamics Holdings Berhad is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 5.6% on its capital. Not only that, but the company is utilizing 133% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line On Visdynamics Holdings Berhad's ROCE

Long story short, we're delighted to see that Visdynamics Holdings Berhad's reinvestment activities have paid off and the company is now profitable. And a remarkable 965% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 3 warning signs facing Visdynamics Holdings Berhad that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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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