GnBS ecoLtd (KOSDAQ:382800) Hasn't Managed To Accelerate Its Returns

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. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at GnBS ecoLtd's (KOSDAQ:382800) ROCE trend, we were pretty happy with what we saw.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

What Is 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 GnBS ecoLtd is:

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

0.13 = ₩15b ÷ (₩129b - ₩12b) (Based on the trailing twelve months to June 2024).

Therefore, GnBS ecoLtd has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 6.3% generated by the Machinery industry.

Check out our latest analysis for GnBS ecoLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for GnBS ecoLtd'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 GnBS ecoLtd.

The Trend Of ROCE

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 13% and the business has deployed 627% more capital into its operations. 13% is a pretty standard return, and it provides some comfort knowing that GnBS ecoLtd has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a side note, GnBS ecoLtd has done well to reduce current liabilities to 9.3% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line

The main thing to remember is that GnBS ecoLtd has proven its ability to continually reinvest at respectable rates of return. Yet over the last three years the stock has declined 19%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

GnBS ecoLtd does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

While GnBS ecoLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.