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Slowing Rates Of Return At Vishay Precision Group (NYSE:VPG) Leave Little Room For Excitement

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Vishay Precision Group (NYSE:VPG) and its ROCE trend, we weren't exactly thrilled.

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 Vishay Precision Group is:

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

0.099 = US$39m ÷ (US$458m - US$59m) (Based on the trailing twelve months to July 2022).

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Therefore, Vishay Precision Group has an ROCE of 9.9%. On its own, that's a low figure but it's around the 12% average generated by the Electronic industry.

Check out our latest analysis for Vishay Precision Group

roce
roce

In the above chart we have measured Vishay Precision Group'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 report on analyst forecasts for the company.

What Can We Tell From Vishay Precision Group's ROCE Trend?

There are better returns on capital out there than what we're seeing at Vishay Precision Group. Over the past five years, ROCE has remained relatively flat at around 9.9% and the business has deployed 64% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

As we've seen above, Vishay Precision Group's returns on capital haven't increased but it is reinvesting in the business. Unsurprisingly, the stock has only gained 31% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you're still interested in Vishay Precision Group it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While Vishay Precision Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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