The Returns On Capital At VIA Labs (TWSE:6756) Don't Inspire Confidence

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. However, after briefly looking over the numbers, we don't think VIA Labs (TWSE:6756) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for VIA Labs:

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

0.034 = NT$100m ÷ (NT$3.8b - NT$902m) (Based on the trailing twelve months to June 2024).

So, VIA Labs has an ROCE of 3.4%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 8.8%.

See our latest analysis for VIA Labs

In the above chart we have measured VIA Labs' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for VIA Labs .

So How Is VIA Labs' ROCE Trending?

In terms of VIA Labs' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 3.4% from 23% five years ago. However it looks like VIA Labs might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

On a side note, VIA Labs has done well to pay down its current liabilities to 23% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line On VIA Labs' ROCE

In summary, VIA Labs is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 53% in the last three years. Therefore based on the analysis done in this article, we don't think VIA Labs has the makings of a multi-bagger.

VIA Labs could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 6756 on our platform quite valuable.

While VIA Labs 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.

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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.