Investors Could Be Concerned With YM Tech's (KOSDAQ:273640) Returns On Capital

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think YM Tech (KOSDAQ:273640) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. The formula for this calculation on YM Tech is:

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

0.052 = ₩3.0b ÷ (₩61b - ₩3.0b) (Based on the trailing twelve months to June 2024).

So, YM Tech has an ROCE of 5.2%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 8.5%.

See our latest analysis for YM Tech

Historical performance is a great place to start when researching a stock so above you can see the gauge for YM Tech's ROCE against it's prior returns. If you'd like to look at how YM Tech has performed in the past in other metrics, you can view this free graph of YM Tech's past earnings, revenue and cash flow.

So How Is YM Tech's ROCE Trending?

When we looked at the ROCE trend at YM Tech, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 5.2% from 15% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

In Conclusion...

In summary, we're somewhat concerned by YM Tech's diminishing returns on increasing amounts of capital. Long term shareholders who've owned the stock over the last three years have experienced a 38% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

On a separate note, we've found 2 warning signs for YM Tech you'll probably want to 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.