The content of this article will benefit those of you who are starting to educate yourself about investing in the stock market and want a simplistic look at the return on Vince Holding Corp (NYSE:VNCE) stock.
Vince Holding stock represents an ownership share in the company. As a result, your investment is being put to work to fund operations and if you want to earn an attractive return on your investment, the business needs to be making an adequate amount of money from the funds you provide. Your return is tied to VNCE’s ability to do this because the amount earned is used to invest in opportunities to grow the business or payout dividends, which are the two sources of return on investment. Therefore, looking at how efficiently Vince Holding is able to use capital to create earnings will help us understand your potential return. Investors use many different metrics but the analysis below focuses on return on capital employed (ROCE). Let’s take a look at what it can tell us.
Calculating Return On Capital Employed for VNCE
Choosing to invest in Vince Holding comes at the cost of investing in another potentially favourable company. Accordingly, before you invest you need to assess the capital returns that the company has produced with reference to a certain benchmark to ensure that you are confident in the business’ ability to grow your capital at a level that grants an investment over other companies. To determine Vince Holding’s capital return we will use ROCE, which tells us how much the company makes from the capital employed in their operations (for things like machinery, wages etc). VNCE’s ROCE is calculated below:
ROCE Calculation for VNCE
Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)
Capital Employed = (Total Assets – Current Liabilities)
∴ ROCE = US$67.82m ÷ (US$225.96m – US$41.44m) = 36.76%
As you can see, VNCE earned $36.8 from every $100 you invested over the previous twelve months. This makes Vince Holding exceptionally profitable when compared to a robust 15% ROCE yardstick. So if this rate continues in to the future and is able to either provide solid dividends or reinvestment opportunities, your capital will enlarge at a rapid rate over time.
Does this mean I should invest?
Vince Holding’s relatively strong ROCE is tied to the movement in two factors that change over time: earnings and capital requirements. At the moment Vince Holding is in a favourable position, but this can change if these factors underperform. Because of this, it is important to look beyond the final value of VNCE’s ROCE and understand what is happening to the individual components. Looking three years in the past, it is evident that VNCE’s ROCE has risen from 19.22%, indicating the company’s capital returns have stengthened. Over the same period, EBT went from US$61.63m to US$67.82m and capital employed fell due to a decreased level of total assets , which means the company has been able to improve ROCE by growing earnings and simultaneously putting less capital to work.
VNCE’s investors have enjoyed an upward trend in ROCE and it is above a benchmark that makes the company a potentially attractive stock that can achieve a solid return on investment. This makes the company an attractive place to put your money, but ROCE does not tell the whole picture so you need to pay attention to other fundamentals like future prospects and management ability. If you don’t pay attention to these factors you cannot be sure if this trend will continue or reverse due to reasons that cannot be seen by looking in the past. If you’re interested in diving deeper, take a look at what I’ve linked below for further information on these fundamentals and other potential investment opportunities.
- Future Outlook: What are well-informed industry analysts predicting for VNCE’s future growth? Take a look at our free research report of analyst consensus for VNCE’s outlook.
- Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for Vince Holding’s future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.