Be Wary Of ViTrox Corporation Berhad (KLSE:VITROX) And Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at ViTrox Corporation Berhad (KLSE:VITROX), they do have a high ROCE, but we weren't exactly elated from how returns are trending.

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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 ViTrox Corporation Berhad:

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

0.22 = RM243m ÷ (RM1.2b - RM142m) (Based on the trailing twelve months to March 2025).

So, ViTrox Corporation Berhad has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 7.0%.

See our latest analysis for ViTrox Corporation Berhad

In the above chart we have measured ViTrox Corporation Berhad'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 ViTrox Corporation Berhad for free.

So How Is ViTrox Corporation Berhad's ROCE Trending?

On the surface, the trend of ROCE at ViTrox Corporation Berhad doesn't inspire confidence. To be more specific, while the ROCE is still high, it's fallen from 29% where it was five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

Bringing it all together, while we're somewhat encouraged by ViTrox Corporation Berhad's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has gained an impressive 57% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

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

ViTrox Corporation Berhad is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.