Yahoo Finance Venture's (SGX:V03) Returns On Capital Not Reflecting Well On The Business
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. However, after investigating Venture (SGX:V03), we don't think it's current trends fit the mold of a multi-bagger.
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. The formula for this calculation on Venture is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = S$352m ÷ (S$3.6b - S$809m) (Based on the trailing twelve months to September 2023).
Thus, Venture has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.3% generated by the Electronic industry.
Check out our latest analysis for Venture
In the above chart we have measured Venture's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Venture here for free.
So How Is Venture's ROCE Trending?
On the surface, the trend of ROCE at Venture doesn't inspire confidence. Over the last five years, returns on capital have decreased to 12% from 20% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.
Our Take On Venture's ROCE
We're a bit apprehensive about Venture because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Investors must expect better things on the horizon though because the stock has risen 14% in the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.
On a separate note, we've found 1 warning sign for Venture you'll probably want to know about.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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.
