Returns On Capital Are Showing Encouraging Signs At ALMAC (KOSDAQ:354320)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, ALMAC (KOSDAQ:354320) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for ALMAC, this is the formula:

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

0.043 = ₩10b ÷ (₩304b - ₩64b) (Based on the trailing twelve months to March 2024).

Thus, ALMAC has an ROCE of 4.3%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 8.5%.

View our latest analysis for ALMAC

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of ALMAC.

How Are Returns Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 4.3%. The amount of capital employed has increased too, by 389%. So we're very much inspired by what we're seeing at ALMAC thanks to its ability to profitably reinvest capital.

One more thing to note, ALMAC has decreased current liabilities to 21% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Key Takeaway

All in all, it's terrific to see that ALMAC is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 66% in the last year. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know more about ALMAC, we've spotted 3 warning signs, and 1 of them is concerning.

While ALMAC 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.

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