Return Trends At Samkee (KOSDAQ:122350) Aren't Appealing

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. In light of that, when we looked at Samkee (KOSDAQ:122350) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Samkee is:

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

0.0051 = ₩1.4b ÷ (₩604b - ₩322b) (Based on the trailing twelve months to September 2024).

Thus, Samkee has an ROCE of 0.5%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 8.2%.

View our latest analysis for Samkee

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 Samkee has performed in the past in other metrics, you can view this free graph of Samkee's past earnings, revenue and cash flow.

So How Is Samkee's ROCE Trending?

There are better returns on capital out there than what we're seeing at Samkee. The company has employed 45% more capital in the last five years, and the returns on that capital have remained stable at 0.5%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Another thing to note, Samkee has a high ratio of current liabilities to total assets of 53%. 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.

Our Take On Samkee's ROCE

Long story short, while Samkee has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has declined 45% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Samkee has the makings of a multi-bagger.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Samkee (of which 1 doesn't sit too well with us!) that you should know about.

While Samkee isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.