Here's What ViTrox Corporation Berhad's (KLSE:VITROX) Strong Returns On Capital Mean

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So, when we ran our eye over ViTrox Corporation Berhad's (KLSE:VITROX) trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for ViTrox Corporation Berhad, this is the formula:

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

0.34 = RM215m ÷ (RM815m - RM178m) (Based on the trailing twelve months to March 2021).

So, ViTrox Corporation Berhad has an ROCE of 34%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.

Check out 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 to see what analysts are forecasting going forward, you should check out our free report for ViTrox Corporation Berhad.

What Can We Tell From ViTrox Corporation Berhad's ROCE Trend?

It's hard not to be impressed by ViTrox Corporation Berhad's returns on capital. The company has consistently earned 34% for the last five years, and the capital employed within the business has risen 159% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. You'll see this when looking at well operated businesses or favorable business models.

In Conclusion...

ViTrox Corporation Berhad has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And long term investors would be thrilled with the 754% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

While ViTrox Corporation Berhad looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether VITROX is currently trading for a fair price.

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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