There's Been No Shortage Of Growth Recently For Vortex Consolidated Berhad's (KLSE:VC) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Vortex Consolidated Berhad (KLSE:VC) and its trend of ROCE, we really liked what we saw.

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

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. To calculate this metric for Vortex Consolidated Berhad, this is the formula:

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

0.012 = RM2.9m ÷ (RM335m - RM94m) (Based on the trailing twelve months to September 2021).

Therefore, Vortex Consolidated Berhad has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 14%.

Check out our latest analysis for Vortex Consolidated Berhad

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

What Does the ROCE Trend For Vortex Consolidated Berhad Tell Us?

Vortex Consolidated Berhad has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 1.2% on its capital. Not only that, but the company is utilizing 269% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line On Vortex Consolidated Berhad's ROCE

In summary, it's great to see that Vortex Consolidated Berhad has managed to break into profitability and is continuing to reinvest in its business. And since the stock has dived 87% over the last five years, there may be other factors affecting the company's prospects. Still, it's worth doing some further research to see if the trends will continue into the future.

On a final note, we found 4 warning signs for Vortex Consolidated Berhad (2 are a bit concerning) you should be aware of.

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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.