Clean & Science (KOSDAQ:045520) Knows How To Allocate Capital Effectively

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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 the ROCE trend of Clean & Science (KOSDAQ:045520) we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Clean & Science:

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

0.22 = ₩20b ÷ (₩129b - ₩41b) (Based on the trailing twelve months to September 2020).

Therefore, Clean & Science has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Machinery industry average of 5.4%.

See our latest analysis for Clean & Science

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

How Are Returns Trending?

Clean & Science is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 22%. The amount of capital employed has increased too, by 194%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Clean & Science's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Clean & Science has. And a remarkable 458% 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.

Clean & Science does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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