Visual Photonics Epitaxy (TWSE:2455) Is Investing Its Capital With Increasing Efficiency

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. And in light of that, the trends we're seeing at Visual Photonics Epitaxy's (TWSE:2455) look very promising so lets take a look.

What Is Return On Capital Employed (ROCE)?

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 Visual Photonics Epitaxy, this is the formula:

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

0.23 = NT$870m ÷ (NT$4.5b - NT$755m) (Based on the trailing twelve months to September 2024).

So, Visual Photonics Epitaxy has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 9.3%.

View our latest analysis for Visual Photonics Epitaxy

Above you can see how the current ROCE for Visual Photonics Epitaxy compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Visual Photonics Epitaxy .

The Trend Of ROCE

The trends we've noticed at Visual Photonics Epitaxy are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 23%. The amount of capital employed has increased too, by 23%. So we're very much inspired by what we're seeing at Visual Photonics Epitaxy thanks to its ability to profitably reinvest capital.

One more thing to note, Visual Photonics Epitaxy has decreased current liabilities to 17% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. 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.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Visual Photonics Epitaxy has. And with a respectable 64% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 1 warning sign with Visual Photonics Epitaxy and understanding it should be part of your investment process.

Visual Photonics Epitaxy 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.