GH Advanced Materials (KOSDAQ:130500) Shareholders Will Want The ROCE Trajectory To Continue

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, GH Advanced Materials (KOSDAQ:130500) looks quite promising in regards to its trends of return on capital.

We've discovered 2 warning signs about GH Advanced Materials. View them for free.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on GH Advanced Materials is:

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

0.056 = ₩7.7b ÷ (₩192b - ₩54b) (Based on the trailing twelve months to December 2024).

Thus, GH Advanced Materials has an ROCE of 5.6%. On its own, that's a low figure but it's around the 6.7% average generated by the Luxury industry.

View our latest analysis for GH Advanced Materials

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

So How Is GH Advanced Materials' ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 5.6%. 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 174%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

All in all, it's terrific to see that GH Advanced Materials is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 18% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for GH Advanced Materials (of which 1 is concerning!) that you should know about.

While GH Advanced Materials 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.