The high yield trend in VisasQ (TSE:4490) has caught our keen interest

Did you know that there are some financial metrics that can provide clues about a potential multi-bagger? In a perfect world, we would want a company to invest more capital in its business and, ideally, the returns generated from that capital also increase. This shows us that it is a compounding machine, capable of continually reinvesting its profits back into the company and generating higher returns. Against this background, the ROCE of VisasQ (TSE:4490) looks great, so let’s see what the trend tells us.

Return on Capital Employed (ROCE): What is it?

If you’ve never worked with ROCE before, it measures the “return” (profit before taxes) that a company generates from the capital employed in its business. The formula for this calculation on VisasQ is:

Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)

0.20 = JP¥653 million ÷ (JP¥7.0 billion – JP¥3.8 billion) (Based on the last twelve months ending August 2024).

Therefore, VisasQ has a ROCE of 20%. In absolute terms, this is a great return and is even higher than the industry average of 15% for professional services.

Check out our latest analysis for VisasQ

In the chart above we measured VisasQ’s past ROCE compared to its previous performance, but the future is arguably more important. If you want, you can check out the forecasts from the analysts covering VisasQ free.

How do returns develop?

We like the trends we see from VisasQ. In the last three years, the return on capital employed has increased significantly to 20%. Basically, the company earns more per dollar invested and on top of that, 223% more capital is now being deployed. This may indicate that there are numerous opportunities to invest capital internally and at increasingly higher interest rates, a combination common among multi-baggers.

Another thing to note is that VisasQ has a high current liabilities to total assets ratio of 54%. This can entail certain risks, as the company is fundamentally dependent to a relatively large extent on its suppliers or other short-term creditors. Ideally we would like to see a reduction as this would mean fewer commitments with risks.

Finally…

A business that can increase its return on capital and continually reinvest in itself is a highly sought-after trait, and that’s exactly what VisasQ has. And with the stock down 79% over the past three years, other factors could be affecting the company’s prospects. Still, it’s worth conducting further research to see if the trends will continue in the future.

As we have discovered, VisasQ carries some risks 2 warning signs (and 1 that makes us a little uncomfortable) that we think you should know.

High returns are a key factor in strong performance, so check out ours free List of stocks with high returns on equity and solid balance sheets.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no positions in any stocks mentioned.