EASY BIOInc (KOSDAQ:353810) Might Be Having Difficulty Using Its Capital Effectively

Did you know there are some financial metrics that can provide clues of a potential 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at EASY BIOInc (KOSDAQ:353810) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for EASY BIOInc:

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

0.11 = ₩25b ÷ (₩337b - ₩113b) (Based on the trailing twelve months to June 2024).

Therefore, EASY BIOInc has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 7.2% it's much better.

Check out our latest analysis for EASY BIOInc

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 EASY BIOInc's past further, check out this free graph covering EASY BIOInc's past earnings, revenue and cash flow.

What Can We Tell From EASY BIOInc's ROCE Trend?

When we looked at the ROCE trend at EASY BIOInc, we didn't gain much confidence. Over the last two years, returns on capital have decreased to 11% from 28% two years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

On a side note, EASY BIOInc has done well to pay down its current liabilities to 34% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line On EASY BIOInc's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that EASY BIOInc is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 19% over the last three years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

EASY BIOInc does have some risks, we noticed 2 warning signs (and 1 which is potentially serious) we think you should know about.

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. 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.