Investors Met With Slowing Returns on Capital At Fine M-TecLTD (KOSDAQ:441270)

Simply Wall St · 10/16 23:23

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. However, after briefly looking over the numbers, we don't think Fine M-TecLTD (KOSDAQ:441270) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What Is It?

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 Fine M-TecLTD is:

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

0.081 = ₩17b ÷ (₩386b - ₩180b) (Based on the trailing twelve months to June 2024).

So, Fine M-TecLTD has an ROCE of 8.1%. On its own, that's a low figure but it's around the 6.9% average generated by the Electronic industry.

See our latest analysis for Fine M-TecLTD

roce
KOSDAQ:A441270 Return on Capital Employed October 16th 2024

Above you can see how the current ROCE for Fine M-TecLTD compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Fine M-TecLTD .

How Are Returns Trending?

Over the past one year, Fine M-TecLTD's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Fine M-TecLTD to be a multi-bagger going forward.

On another note, while the change in ROCE trend might not scream for attention, it's interesting that the current liabilities have actually gone up over the last one year. This is intriguing because if current liabilities hadn't increased to 47% of total assets, this reported ROCE would probably be less than8.1% because total capital employed would be higher.The 8.1% ROCE could be even lower if current liabilities weren't 47% of total assets, because the the formula would show a larger base of total capital employed. So with current liabilities at such high levels, this effectively means the likes of suppliers or short-term creditors are funding a meaningful part of the business, which in some instances can bring some risks.

The Key Takeaway

In a nutshell, Fine M-TecLTD has been trudging along with the same returns from the same amount of capital over the last one year. Since the stock has declined 14% over the last year, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Fine M-TecLTD could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for A441270 on our platform quite valuable.

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.