Investors Will Want Oriental Precision & EngineeringLtd's (KOSDAQ:014940) Growth In ROCE To Persist

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Oriental Precision & EngineeringLtd (KOSDAQ:014940) looks quite promising in regards to its trends of return on capital.

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

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. To calculate this metric for Oriental Precision & EngineeringLtd, this is the formula:

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

0.17 = ₩23b ÷ (₩212b - ₩78b) (Based on the trailing twelve months to September 2024).

Thus, Oriental Precision & EngineeringLtd has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 6.5% generated by the Machinery industry.

See our latest analysis for Oriental Precision & EngineeringLtd

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

So How Is Oriental Precision & EngineeringLtd's ROCE Trending?

We like the trends that we're seeing from Oriental Precision & EngineeringLtd. Over the last five years, returns on capital employed have risen substantially to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 166% more capital is being employed now too. So we're very much inspired by what we're seeing at Oriental Precision & EngineeringLtd thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 37%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

What We Can Learn From Oriental Precision & EngineeringLtd's ROCE

In summary, it's great to see that Oriental Precision & EngineeringLtd 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. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for A014940 that compares the share price and estimated value.

While Oriental Precision & EngineeringLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.