Investors Could Be Concerned With KOSESLtd's (KOSDAQ:089890) Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at KOSESLtd (KOSDAQ:089890), it didn't seem to tick all of these boxes.

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 KOSESLtd is:

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

0.12 = ₩8.0b ÷ (₩99b - ₩30b) (Based on the trailing twelve months to December 2023).

Therefore, KOSESLtd has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 5.4% it's much better.

Check out our latest analysis for KOSESLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for KOSESLtd's ROCE against it's prior returns. If you're interested in investigating KOSESLtd's past further, check out this free graph covering KOSESLtd's past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of KOSESLtd's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 26%, but since then they've fallen to 12%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On KOSESLtd's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that KOSESLtd is reinvesting for growth and has higher sales as a result. In light of this, the stock has only gained 27% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

If you'd like to know more about KOSESLtd, we've spotted 3 warning signs, and 1 of them shouldn't be ignored.

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.