Should You Be Impressed By Koryo Credit Information's (KOSDAQ:049720) Returns on Capital?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, while the ROCE is currently high for Koryo Credit Information (KOSDAQ:049720), we aren't jumping out of our chairs because returns are decreasing.

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. The formula for this calculation on Koryo Credit Information is:

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

0.26 = ₩9.5b ÷ (₩60b - ₩23b) (Based on the trailing twelve months to September 2020).

Thus, Koryo Credit Information has an ROCE of 26%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

View our latest analysis for Koryo Credit Information

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

So How Is Koryo Credit Information's ROCE Trending?

When we looked at the ROCE trend at Koryo Credit Information, we didn't gain much confidence. To be more specific, while the ROCE is still high, it's fallen from 33% where it was five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Key Takeaway

While returns have fallen for Koryo Credit Information in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And long term investors must be optimistic going forward because the stock has returned a huge 151% to shareholders in the last five years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

One final note, you should learn about the 2 warning signs we've spotted with Koryo Credit Information (including 1 which is doesn't sit too well with us) .

Koryo Credit Information is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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