SM Life Design Group (KOSDAQ:063440) Shareholders Will Want The ROCE Trajectory To Continue

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in SM Life Design Group's (KOSDAQ:063440) returns on capital, so let's have a look.

What Is 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. Analysts use this formula to calculate it for SM Life Design Group:

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

0.053 = ₩3.2b ÷ (₩67b - ₩8.2b) (Based on the trailing twelve months to March 2024).

Therefore, SM Life Design Group has an ROCE of 5.3%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 7.4%.

View our latest analysis for SM Life Design Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for SM Life Design Group'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 SM Life Design Group.

How Are Returns Trending?

Shareholders will be relieved that SM Life Design Group has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 5.3%, which is always encouraging. While returns have increased, the amount of capital employed by SM Life Design Group has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Key Takeaway

To bring it all together, SM Life Design Group has done well to increase the returns it's generating from its capital employed. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. So researching this company further and determining whether or not these trends will continue seems justified.

SM Life Design Group does have some risks though, and we've spotted 1 warning sign for SM Life Design Group that you might be interested in.

While SM Life Design Group 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.

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