KKO International (EPA:ALKKO) Is Looking To Continue Growing Its Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, KKO International (EPA:ALKKO) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for KKO International:

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

0.089 = €1.5m ÷ (€21m - €4.3m) (Based on the trailing twelve months to June 2024).

Thus, KKO International has an ROCE of 8.9%. Even though it's in line with the industry average of 9.3%, it's still a low return by itself.

Check out our latest analysis for KKO International

Historical performance is a great place to start when researching a stock so above you can see the gauge for KKO International's ROCE against it's prior returns. If you'd like to look at how KKO International has performed in the past in other metrics, you can view this free graph of KKO International's past earnings, revenue and cash flow.

What Does the ROCE Trend For KKO International Tell Us?

KKO International has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 8.9% on its capital. Not only that, but the company is utilizing 171% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 20%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that KKO International has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line

Overall, KKO International gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And with a respectable 61% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

KKO International does have some risks, we noticed 3 warning signs (and 2 which are concerning) we think you should know about.

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.