Should You Be Impressed By Kukbo Design's (KOSDAQ:066620) Returns on Capital?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Kukbo Design (KOSDAQ:066620) looks decent, right now, so lets see what the trend of returns can tell us.

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. To calculate this metric for Kukbo Design, this is the formula:

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

0.11 = ₩16b ÷ (₩233b - ₩84b) (Based on the trailing twelve months to September 2020).

Thus, Kukbo Design has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.8% generated by the Consumer Services industry.

See our latest analysis for Kukbo Design

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 Kukbo Design has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 80% in that time. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Kukbo Design's ROCE

To sum it up, Kukbo Design has simply been reinvesting capital steadily, at those decent rates of return. In light of this, the stock has only gained 6.8% over the last five years for shareholders who have owned the stock in this period. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

Like most companies, Kukbo Design does come with some risks, and we've found 1 warning sign that you should be aware of.

While Kukbo Design 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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