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Vishay Intertechnology (NYSE:VSH) Is Experiencing Growth In Returns On Capital

·3 min read

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Speaking of which, we noticed some great changes in Vishay Intertechnology's (NYSE:VSH) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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$537m ÷ (US$3.6b - US$704m) (Based on the trailing twelve months to July 2022).

So, Vishay Intertechnology has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 12% generated by the Electronic industry.

See our latest analysis for Vishay Intertechnology

roce
roce

In the above chart we have measured Vishay Intertechnology's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Vishay Intertechnology.

What The Trend Of ROCE Can Tell Us

Vishay Intertechnology's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 109% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line On Vishay Intertechnology's ROCE

As discussed above, Vishay Intertechnology appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 14% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you'd like to know more about Vishay Intertechnology, we've spotted 2 warning signs, and 1 of them is a bit unpleasant.

While Vishay Intertechnology 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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