Formetal's (KOSDAQ:119500) Returns Have Hit A Wall

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. However, after investigating Formetal (KOSDAQ:119500), we don't think it's current trends fit the mold of a multi-bagger.

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. Analysts use this formula to calculate it for Formetal:

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

0.037 = ₩1.9b ÷ (₩65b - ₩13b) (Based on the trailing twelve months to September 2024).

Thus, Formetal has an ROCE of 3.7%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 6.7%.

See our latest analysis for Formetal

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're interested in investigating Formetal's past further, check out this free graph covering Formetal's past earnings, revenue and cash flow.

What Does the ROCE Trend For Formetal Tell Us?

There hasn't been much to report for Formetal's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Formetal to be a multi-bagger going forward.

In Conclusion...

We can conclude that in regards to Formetal's returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 32% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Formetal does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

While Formetal isn't earning the highest return, check out this free list of companies that are 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.