What Do The Returns At Y-Entec (KOSDAQ:067900) Mean Going Forward?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. 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 Y-Entec's (KOSDAQ:067900) returns on capital, so let's have a look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Y-Entec, this is the formula:

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

0.19 = ₩35b ÷ (₩253b - ₩64b) (Based on the trailing twelve months to September 2020).

So, Y-Entec has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 14% it's much better.

View our latest analysis for Y-Entec

Historical performance is a great place to start when researching a stock so above you can see the gauge for Y-Entec's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Y-Entec, check out these free graphs here.

What Can We Tell From Y-Entec's ROCE Trend?

The trends we've noticed at Y-Entec are quite reassuring. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 19%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 39%. So we're very much inspired by what we're seeing at Y-Entec thanks to its ability to profitably reinvest capital.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Y-Entec has. Since the stock has returned a staggering 330% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Y-Entec can keep these trends up, it could have a bright future ahead.

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

While Y-Entec 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. 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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