Notion VTec Berhad (KLSE:NOTION) Shareholders Will Want The ROCE Trajectory To Continue
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Notion VTec Berhad (KLSE:NOTION) so let's look a bit deeper.
What Is 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 Notion VTec Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.014 = RM6.4m ÷ (RM556m - RM99m) (Based on the trailing twelve months to June 2024).
Therefore, Notion VTec Berhad has an ROCE of 1.4%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 10%.
View our latest analysis for Notion VTec Berhad
In the above chart we have measured Notion VTec Berhad's 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 Notion VTec Berhad .
What Can We Tell From Notion VTec Berhad's ROCE Trend?
We're delighted to see that Notion VTec Berhad is reaping rewards from its investments and has now broken into profitability. The company now earns 1.4% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Notion VTec Berhad has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.
What We Can Learn From Notion VTec Berhad's ROCE
To bring it all together, Notion VTec Berhad has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Notion VTec Berhad (of which 1 is a bit unpleasant!) that you should know about.
While Notion VTec Berhad 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.