Returns Are Gaining Momentum At Mohenz.Co.Ltd (KOSDAQ:006920)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. With that in mind, we've noticed some promising trends at Mohenz.Co.Ltd (KOSDAQ:006920) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Mohenz.Co.Ltd is:

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

0.11 = ₩6.1b ÷ (₩70b - ₩15b) (Based on the trailing twelve months to June 2024).

So, Mohenz.Co.Ltd has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 9.1% generated by the Basic Materials industry.

See our latest analysis for Mohenz.Co.Ltd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Mohenz.Co.Ltd's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Mohenz.Co.Ltd.

So How Is Mohenz.Co.Ltd's ROCE Trending?

We like the trends that we're seeing from Mohenz.Co.Ltd. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 44% more capital is being employed now too. So we're very much inspired by what we're seeing at Mohenz.Co.Ltd thanks to its ability to profitably reinvest capital.

One more thing to note, Mohenz.Co.Ltd has decreased current liabilities to 21% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Mohenz.Co.Ltd has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line

In summary, it's great to see that Mohenz.Co.Ltd can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Given the stock has declined 40% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Like most companies, Mohenz.Co.Ltd does come with some risks, and we've found 2 warning signs that you should be aware of.

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.