Under The Bonnet, Creative & Innovative System's (KOSDAQ:222080) Returns Look Impressive

Simply Wall St · 10/14 23:13

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at Creative & Innovative System's (KOSDAQ:222080) look very promising so lets take a look.

Understanding 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 Creative & Innovative System is:

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

0.25 = ₩80b ÷ (₩627b - ₩310b) (Based on the trailing twelve months to June 2024).

Thus, Creative & Innovative System has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Machinery industry average of 6.4%.

See our latest analysis for Creative & Innovative System

roce
KOSDAQ:A222080 Return on Capital Employed October 14th 2024

Above you can see how the current ROCE for Creative & Innovative System compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Creative & Innovative System for free.

The Trend Of ROCE

The fact that Creative & Innovative System is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 25% on its capital. In addition to that, Creative & Innovative System is employing 466% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a related note, the company's ratio of current liabilities to total assets has decreased to 49%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Creative & Innovative System has grown its returns without a reliance on increasing their current liabilities, which we're very happy with. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

The Bottom Line On Creative & Innovative System's ROCE

To the delight of most shareholders, Creative & Innovative System has now broken into profitability. And a remarkable 281% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Creative & Innovative System does have some risks, we noticed 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.