Will the Promising Trends At Samchuly Bicycle (KOSDAQ:024950) Continue?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Samchuly Bicycle's (KOSDAQ:024950) 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. The formula for this calculation on Samchuly Bicycle is:

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

0.13 = ₩9.7b ÷ (₩125b - ₩50b) (Based on the trailing twelve months to September 2020).

So, Samchuly Bicycle has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.1% generated by the Leisure industry.

Check out our latest analysis for Samchuly Bicycle

Historical performance is a great place to start when researching a stock so above you can see the gauge for Samchuly Bicycle's ROCE against it's prior returns. If you're interested in investigating Samchuly Bicycle's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Samchuly Bicycle's ROCE Trending?

Samchuly Bicycle has not disappointed in regards to ROCE growth. The figures show that over the last four years, returns on capital have grown by 93%. The company is now earning ₩0.1 per dollar of capital employed. In regards to capital employed, Samchuly Bicycle appears to been achieving more with less, since the business is using 36% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

On a separate but related note, it's important to know that Samchuly Bicycle has a current liabilities to total assets ratio of 40%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

In the end, Samchuly Bicycle has proven it's capital allocation skills are good with those higher returns from less amount of capital. Astute investors may have an opportunity here because the stock has declined 52% 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 Samchuly Bicycle, we've discovered 1 warning sign that you should be aware of.

While Samchuly Bicycle 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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