Should We Be Excited About The Trends Of Returns At Cubic Korea (KOSDAQ:021650)?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Cubic Korea's (KOSDAQ:021650) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Cubic Korea:

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

0.11 = ₩8.1b ÷ (₩131b - ₩55b) (Based on the trailing twelve months to June 2020).

Therefore, Cubic Korea has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Commercial Services industry average of 12%.

See our latest analysis for Cubic Korea

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

What Does the ROCE Trend For Cubic Korea Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 75% more capital in the last five years, and the returns on that capital have remained stable at 11%. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 42% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

The Bottom Line On Cubic Korea's ROCE

The main thing to remember is that Cubic Korea has proven its ability to continually reinvest at respectable rates of return. However, over the last five years, the stock has only delivered a 26% return to shareholders who held over that period. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

One more thing, we've spotted 3 warning signs facing Cubic Korea that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. 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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