T-Robotics.Co.Ltd (KOSDAQ:117730) Will Will Want To Turn Around Its Return Trends

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think T-Robotics.Co.Ltd (KOSDAQ:117730) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. Analysts use this formula to calculate it for T-Robotics.Co.Ltd:

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

0.081 = ₩3.5b ÷ (₩76b - ₩33b) (Based on the trailing twelve months to December 2020).

Therefore, T-Robotics.Co.Ltd has an ROCE of 8.1%. In absolute terms, that's a low return, but it's much better than the Machinery industry average of 5.3%.

See our latest analysis for T-Robotics.Co.Ltd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of T-Robotics.Co.Ltd, check out these free graphs here.

What Does the ROCE Trend For T-Robotics.Co.Ltd Tell Us?

We weren't thrilled with the trend because T-Robotics.Co.Ltd's ROCE has reduced by 80% over the last three years, while the business employed 174% more capital. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. T-Robotics.Co.Ltd probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

On a related note, T-Robotics.Co.Ltd has decreased its current liabilities to 43% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money. Keep in mind 43% is still pretty high, so those risks are still somewhat prevalent.

Our Take On T-Robotics.Co.Ltd's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that T-Robotics.Co.Ltd is reinvesting for growth and has higher sales as a result. And long term investors must be optimistic going forward because the stock has returned a huge 144% to shareholders in the last year. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

One more thing: We've identified 3 warning signs with T-Robotics.Co.Ltd (at least 1 which shouldn't be ignored) , and understanding them would certainly be useful.

While T-Robotics.Co.Ltd 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. 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.
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