The Return Trends At Global SM Tech (KOSDAQ:900070) Look Promising

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 Global SM Tech (KOSDAQ:900070) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 Global SM Tech is:

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

0.048 = ₩6.2b ÷ (₩154b - ₩24b) (Based on the trailing twelve months to September 2023).

So, Global SM Tech has an ROCE of 4.8%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 7.0%.

Check out our latest analysis for Global SM Tech

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Global SM Tech.

What Does the ROCE Trend For Global SM Tech Tell Us?

Global SM Tech has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 4.8% which is a sight for sore eyes. In addition to that, Global SM Tech is employing 22% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Key Takeaway

Long story short, we're delighted to see that Global SM Tech's reinvestment activities have paid off and the company is now profitable. Astute investors may have an opportunity here because the stock has declined 48% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know about the risks facing Global SM Tech, we've discovered 1 warning sign that you should be aware of.

While Global SM Tech 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.