Yahoo Finance Investors Will Want Vishay Intertechnology's (NYSE:VSH) Growth In ROCE To Persist
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Vishay Intertechnology (NYSE:VSH) and its trend of ROCE, we really liked what we saw.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Vishay Intertechnology is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = US$612m ÷ (US$3.9b - US$726m) (Based on the trailing twelve months to December 2022).
So, Vishay Intertechnology has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 13% it's much better.
See our latest analysis for Vishay Intertechnology
Above you can see how the current ROCE for Vishay Intertechnology compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Vishay Intertechnology.
So How Is Vishay Intertechnology's ROCE Trending?
Vishay Intertechnology's ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 75% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.
The Key Takeaway
To bring it all together, Vishay Intertechnology has done well to increase the returns it's generating from its capital employed. Since the stock has only returned 28% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Vishay Intertechnology (of which 1 is potentially serious!) that you should know about.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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