Can THINKWARE (KOSDAQ:084730) Continue To Grow Its Returns On Capital?

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, THINKWARE (KOSDAQ:084730) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on THINKWARE is:

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

0.059 = ₩9.8b ÷ (₩221b - ₩56b) (Based on the trailing twelve months to September 2020).

Thus, THINKWARE has an ROCE of 5.9%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 7.8%.

Check out our latest analysis for THINKWARE

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'd like to look at how THINKWARE has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

THINKWARE is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 240% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

Our Take On THINKWARE's ROCE

To sum it up, THINKWARE is collecting higher returns from the same amount of capital, and that's impressive. Given the stock has declined 29% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

THINKWARE does have some risks though, and we've spotted 2 warning signs for THINKWARE that you might be interested in.

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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