The Return Trends At Rothwell International (KOSDAQ:900260) Look Promising

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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, Rothwell International (KOSDAQ:900260) looks quite promising in regards to its trends of return on capital.

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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. Analysts use this formula to calculate it for Rothwell International:

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

0.089 = ₩23b ÷ (₩669b - ₩410b) (Based on the trailing twelve months to September 2024).

Thus, Rothwell International has an ROCE of 8.9%. In absolute terms, that's a low return but it's around the Auto Components industry average of 7.5%.

View our latest analysis for Rothwell International

Historical performance is a great place to start when researching a stock so above you can see the gauge for Rothwell International's ROCE against it's prior returns. If you're interested in investigating Rothwell International's past further, check out this free graph covering Rothwell International's past earnings, revenue and cash flow .

So How Is Rothwell International's ROCE Trending?

Rothwell International has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 538% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 61% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.

The Key Takeaway

To sum it up, Rothwell International is collecting higher returns from the same amount of capital, and that's impressive. However the stock is down a substantial 75% in the last five years so there could be other areas of the business hurting its prospects. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

One more thing, we've spotted 1 warning sign facing Rothwell International that you might find interesting.

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. 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.