Capital Allocation Trends At Multicampus (KOSDAQ:067280) Aren't Ideal

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. In light of that, when we looked at Multicampus (KOSDAQ:067280) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for Multicampus, this is the formula:

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

0.098 = ₩14b ÷ (₩193b - ₩53b) (Based on the trailing twelve months to December 2020).

Therefore, Multicampus has an ROCE of 9.8%. Even though it's in line with the industry average of 10%, it's still a low return by itself.

View our latest analysis for Multicampus

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

The Trend Of ROCE

When we looked at the ROCE trend at Multicampus, we didn't gain much confidence. To be more specific, ROCE has fallen from 18% over the last five years. However it looks like Multicampus might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

In summary, Multicampus is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last five years, the stock has given away 16% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Multicampus has the makings of a multi-bagger.

One more thing, we've spotted 2 warning signs facing Multicampus that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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