Returns On Capital At Mobile Appliance (KOSDAQ:087260) Paint A Concerning Picture

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Mobile Appliance (KOSDAQ:087260), we don't think it's current trends fit the mold of a multi-bagger.

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. Analysts use this formula to calculate it for Mobile Appliance:

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

0.007 = ₩334m ÷ (₩80b - ₩32b) (Based on the trailing twelve months to March 2024).

Thus, Mobile Appliance has an ROCE of 0.7%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 8.5%.

See our latest analysis for Mobile Appliance

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

What Does the ROCE Trend For Mobile Appliance Tell Us?

We weren't thrilled with the trend because Mobile Appliance's ROCE has reduced by 84% over the last five years, while the business employed 36% more capital. That being said, Mobile Appliance raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. Mobile Appliance probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

On a separate but related note, it's important to know that Mobile Appliance has a current liabilities to total assets ratio of 40%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Key Takeaway

From the above analysis, we find it rather worrisome that returns on capital and sales for Mobile Appliance have fallen, meanwhile the business is employing more capital than it was five years ago. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

If you'd like to know about the risks facing Mobile Appliance, we've discovered 4 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com