INZI ControlsLtd (KRX:023800) Is Doing The Right Things To Multiply Its Share Price

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at INZI ControlsLtd (KRX:023800) and its trend of ROCE, we really liked what we saw.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on INZI ControlsLtd is:

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

0.075 = ₩28b ÷ (₩674b - ₩298b) (Based on the trailing twelve months to June 2024).

Thus, INZI ControlsLtd has an ROCE of 7.5%. In absolute terms, that's a low return but it's around the Auto Components industry average of 9.1%.

Check out our latest analysis for INZI ControlsLtd

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

The Trend Of ROCE

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 7.5%. The amount of capital employed has increased too, by 46%. So we're very much inspired by what we're seeing at INZI ControlsLtd thanks to its ability to profitably reinvest capital.

On a side note, INZI ControlsLtd's current liabilities are still rather high at 44% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On INZI ControlsLtd's ROCE

In summary, it's great to see that INZI ControlsLtd can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Considering the stock has delivered 31% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a final note, we found 3 warning signs for INZI ControlsLtd (1 is a bit concerning) you should be aware of.

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.