Returns On Capital Are Showing Encouraging Signs At TC MaterialsLtd (KOSDAQ:125020)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So on that note, TC MaterialsLtd (KOSDAQ:125020) looks quite promising in regards to its trends of return on capital.

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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. To calculate this metric for TC MaterialsLtd, this is the formula:

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

0.17 = ₩10b ÷ (₩75b - ₩15b) (Based on the trailing twelve months to March 2025).

Thus, TC MaterialsLtd has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 8.9% it's much better.

See our latest analysis for TC MaterialsLtd

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

What The Trend Of ROCE Can Tell Us

The fact that TC MaterialsLtd is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 17% on its capital. And unsurprisingly, like most companies trying to break into the black, TC MaterialsLtd is utilizing 103% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

One more thing to note, TC MaterialsLtd has decreased current liabilities to 20% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Key Takeaway

Long story short, we're delighted to see that TC MaterialsLtd's reinvestment activities have paid off and the company is now profitable. Investors may not be impressed by the favorable underlying trends yet because over the last year the stock has only returned 6.6% to shareholders. So with that in mind, we think the stock deserves further research.

If you want to know some of the risks facing TC MaterialsLtd we've found 2 warning signs (1 is potentially serious!) that you should be aware of before investing here.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.