Is KB Autosys (KOSDAQ:024120) Likely To Turn Things Around?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at KB Autosys (KOSDAQ:024120) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding 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. The formula for this calculation on KB Autosys is:

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

0.062 = ₩6.7b ÷ (₩142b - ₩35b) (Based on the trailing twelve months to June 2020).

Thus, KB Autosys has an ROCE of 6.2%. In absolute terms, that's a low return, but it's much better than the Auto Components industry average of 4.6%.

See our latest analysis for KB Autosys

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how KB Autosys has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For KB Autosys Tell Us?

On the surface, the trend of ROCE at KB Autosys doesn't inspire confidence. Around five years ago the returns on capital were 8.3%, but since then they've fallen to 6.2%. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

In Conclusion...

We're a bit apprehensive about KB Autosys because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Investors must expect better things on the horizon though because the stock has risen 24% in the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

KB Autosys does have some risks though, and we've spotted 3 warning signs for KB Autosys that you might be interested in.

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. 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.
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