Oriental Precision & EngineeringLtd (KOSDAQ:014940) Knows How To Allocate Capital

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. That's why when we briefly looked at Oriental Precision & EngineeringLtd's (KOSDAQ:014940) ROCE trend, we were very happy with what we saw.

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What Is Return On Capital Employed (ROCE)?

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 Oriental Precision & EngineeringLtd, this is the formula:

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

0.21 = ₩29b ÷ (₩222b - ₩83b) (Based on the trailing twelve months to March 2025).

So, Oriental Precision & EngineeringLtd has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 6.5% earned by companies in a similar 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'd like to look at how Oriental Precision & EngineeringLtd has performed in the past in other metrics, you can view this free graph of Oriental Precision & EngineeringLtd's past earnings, revenue and cash flow.

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

In terms of Oriental Precision & EngineeringLtd's history of ROCE, it's quite impressive. The company has employed 137% more capital in the last five years, and the returns on that capital have remained stable at 21%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. You'll see this when looking at well operated businesses or favorable business models.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 37% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

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

Oriental Precision & EngineeringLtd has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And long term investors would be thrilled with the 362% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you want to continue researching Oriental Precision & EngineeringLtd, you might be interested to know about the 1 warning sign that our analysis has discovered.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.