Oriental Precision & EngineeringLtd's (KOSDAQ:014940) Returns On Capital Are Heading Higher

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 on that note, Oriental Precision & EngineeringLtd (KOSDAQ:014940) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Oriental Precision & EngineeringLtd is:

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

0.13 = ₩17b ÷ (₩208b - ₩83b) (Based on the trailing twelve months to June 2024).

Thus, Oriental Precision & EngineeringLtd has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 6.4% generated by the Machinery industry.

Check out 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.

What Can We Tell From Oriental Precision & EngineeringLtd's ROCE Trend?

We like the trends that we're seeing from Oriental Precision & EngineeringLtd. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 150% 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.

One more thing to note, Oriental Precision & EngineeringLtd has decreased current liabilities to 40% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

Our Take On Oriental Precision & EngineeringLtd's ROCE

All in all, it's terrific to see that Oriental Precision & EngineeringLtd is reaping the rewards from prior investments and is growing its capital base. And a remarkable 367% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 1 warning sign with Oriental Precision & EngineeringLtd and understanding it should be part of your investment process.

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.