To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at APRO (KOSDAQ:262260) and its ROCE trend, we weren't exactly thrilled.
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 APRO:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.085 = ₩10b ÷ (₩306b - ₩186b) (Based on the trailing twelve months to March 2024).
Thus, APRO has an ROCE of 8.5%. In absolute terms, that's a low return but it's around the Electrical industry average of 8.1%.
Check out our latest analysis for APRO
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 APRO's past further, check out this free graph covering APRO's past earnings, revenue and cash flow.
So How Is APRO's ROCE Trending?
In terms of APRO's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 25% over the last four years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
On a side note, APRO's current liabilities have increased over the last four years to 61% of total assets, effectively distorting the ROCE to some degree. Without this increase, it's likely that ROCE would be even lower than 8.5%. What this means is that in reality, a rather large portion of the business is being funded by the likes of the company's suppliers or short-term creditors, which can bring some risks of its own.
Our Take On APRO's ROCE
Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for APRO. These growth trends haven't led to growth returns though, since the stock has fallen 61% over the last three years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for APRO (of which 2 make us uncomfortable!) that you should know about.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.
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About KOSDAQ:A262260
Moderate with imperfect balance sheet.
