Investors Will Want Codes Combine's (KOSDAQ:047770) Growth In ROCE To Persist

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Codes Combine's (KOSDAQ:047770) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Codes Combine:

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

0.064 = ₩3.7b ÷ (₩76b - ₩19b) (Based on the trailing twelve months to December 2020).

Thus, Codes Combine has an ROCE of 6.4%. In absolute terms, that's a low return but it's around the Luxury industry average of 6.9%.

See our latest analysis for Codes Combine

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Codes Combine's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Codes Combine Tell Us?

We're delighted to see that Codes Combine is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 6.4% on its capital. Not only that, but the company is utilizing 159% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In Conclusion...

Long story short, we're delighted to see that Codes Combine's reinvestment activities have paid off and the company is now profitable. Although the company may be facing some issues elsewhere since the stock has plunged 96% in the last five years. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

On a final note, we've found 1 warning sign for Codes Combine that we think you should be aware of.

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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