Will PNE Solution (KOSDAQ:131390) Repeat Its Return Growth Of The Past?

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. So when we looked at the ROCE trend of PNE Solution (KOSDAQ:131390) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on PNE Solution is:

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

0.23 = ₩23b ÷ (₩208b - ₩108b) (Based on the trailing twelve months to September 2020).

Therefore, PNE Solution has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Electrical industry average of 6.8%.

Check out our latest analysis for PNE Solution

Above you can see how the current ROCE for PNE Solution compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is PNE Solution's ROCE Trending?

Investors would be pleased with what's happening at PNE Solution. The data shows that returns on capital have increased substantially over the last five years to 23%. The amount of capital employed has increased too, by 131%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 52% of its operations, which isn't ideal. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

What We Can Learn From PNE Solution's ROCE

All in all, it's terrific to see that PNE Solution is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 2 warning signs for PNE Solution you'll probably want to know about.

PNE Solution is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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