The Return Trends At A-Tech Solution (KOSDAQ:071670) Look Promising

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in A-Tech Solution's (KOSDAQ:071670) returns on capital, so let's have a look.

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 A-Tech Solution is:

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

0.04 = ₩3.5b ÷ (₩182b - ₩95b) (Based on the trailing twelve months to December 2020).

Thus, A-Tech Solution has an ROCE of 4.0%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 5.3%.

Check out our latest analysis for A-Tech Solution

Historical performance is a great place to start when researching a stock so above you can see the gauge for A-Tech Solution's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of A-Tech Solution, check out these free graphs here.

What Can We Tell From A-Tech Solution's ROCE Trend?

We're delighted to see that A-Tech Solution is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 4.0%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

On a side note, A-Tech Solution's current liabilities are still rather high at 52% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From A-Tech Solution's ROCE

To sum it up, A-Tech Solution is collecting higher returns from the same amount of capital, and that's impressive. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.

If you want to know some of the risks facing A-Tech Solution we've found 3 warning signs (1 is potentially serious!) that you should be aware of before investing here.

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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