What Do The Returns On Capital At BIT Computer (KOSDAQ:032850) Tell Us?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. Although, when we looked at BIT Computer (KOSDAQ:032850), it didn't seem to tick all of these boxes.

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 BIT Computer, this is the formula:

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

0.092 = ₩5.4b ÷ (₩68b - ₩9.3b) (Based on the trailing twelve months to September 2020).

So, BIT Computer has an ROCE of 9.2%. In absolute terms, that's a low return but it's around the Healthcare Services industry average of 9.9%.

See our latest analysis for BIT Computer

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

How Are Returns Trending?

In terms of BIT Computer's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 9.2% and the business has deployed 44% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line

As we've seen above, BIT Computer's returns on capital haven't increased but it is reinvesting in the business. Since the stock has gained an impressive 71% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One more thing to note, we've identified 2 warning signs with BIT Computer and understanding these should be part of your investment process.

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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This article by Simply Wall St is general in nature. 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.
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