VibroPower's (SGX:BJD) Returns On Capital Are Heading Higher

By
Simply Wall St
Published
January 19, 2022
SGX:BJD
Source: Shutterstock

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at VibroPower (SGX:BJD) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on VibroPower is:

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

0.10 = S$2.6m ÷ (S$33m - S$7.4m) (Based on the trailing twelve months to June 2021).

Therefore, VibroPower has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Electrical industry average of 8.9%.

See our latest analysis for VibroPower

roce
SGX:BJD Return on Capital Employed January 19th 2022

Historical performance is a great place to start when researching a stock so above you can see the gauge for VibroPower's ROCE against it's prior returns. If you'd like to look at how VibroPower has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is VibroPower's ROCE Trending?

The fact that VibroPower is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 10% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, VibroPower is utilizing 35% more capital than it was five years ago. 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.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 23%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line

Long story short, we're delighted to see that VibroPower's reinvestment activities have paid off and the company is now profitable. Given the stock has declined 70% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we've found 1 warning sign for VibroPower that we think you should be aware of.

While VibroPower may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.