Korea Fuel-Tech's (KOSDAQ:123410) Returns On Capital Are Heading Higher

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Korea Fuel-Tech (KOSDAQ:123410) looks quite promising in regards to its trends of return on capital.

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What Is 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 Korea Fuel-Tech is:

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

0.13 = ₩38b ÷ (₩467b - ₩180b) (Based on the trailing twelve months to December 2024).

Therefore, Korea Fuel-Tech has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 7.5% generated by the Auto Components industry.

Check out our latest analysis for Korea Fuel-Tech

In the above chart we have measured Korea Fuel-Tech's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Korea Fuel-Tech .

So How Is Korea Fuel-Tech's ROCE Trending?

Investors would be pleased with what's happening at Korea Fuel-Tech. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 62% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

To sum it up, Korea Fuel-Tech has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 118% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Korea Fuel-Tech can keep these trends up, it could have a bright future ahead.

Like most companies, Korea Fuel-Tech does come with some risks, and we've found 2 warning signs that you should be aware of.

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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.