The Returns At Ecopro BM (KOSDAQ:247540) Aren't Growing

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Although, when we looked at Ecopro BM (KOSDAQ:247540), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

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 Ecopro BM is:

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

0.07 = ₩156b ÷ (₩4.4t - ₩2.1t) (Based on the trailing twelve months to December 2023).

Thus, Ecopro BM has an ROCE of 7.0%. On its own, that's a low figure but it's around the 8.2% average generated by the Electrical industry.

View our latest analysis for Ecopro BM

Above you can see how the current ROCE for Ecopro BM compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Ecopro BM .

What Does the ROCE Trend For Ecopro BM Tell Us?

There are better returns on capital out there than what we're seeing at Ecopro BM. The company has consistently earned 7.0% for the last four years, and the capital employed within the business has risen 335% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Another point to note, we noticed the company has increased current liabilities over the last four years. This is intriguing because if current liabilities hadn't increased to 49% of total assets, this reported ROCE would probably be less than7.0% because total capital employed would be higher.The 7.0% ROCE could be even lower if current liabilities weren't 49% of total assets, because the the formula would show a larger base of total capital employed. Additionally, this high level of current liabilities isn't ideal because it means the company's suppliers (or short-term creditors) are effectively funding a large portion of the business.

The Bottom Line On Ecopro BM's ROCE

In summary, Ecopro BM has simply been reinvesting capital and generating the same low rate of return as before. Yet to long term shareholders the stock has gifted them an incredible 1,308% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing, we've spotted 1 warning sign facing Ecopro BM that you might find interesting.

While Ecopro BM 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.