Here’s What’s Happening With Returns At Synergy Innovation (KOSDAQ:048870)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Synergy Innovation's (KOSDAQ:048870) returns on capital, so let's have a look.

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 Synergy Innovation, this is the formula:

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

0.043 = ₩5.5b ÷ (₩155b - ₩26b) (Based on the trailing twelve months to September 2020).

Therefore, Synergy Innovation has an ROCE of 4.3%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 13%.

Check out our latest analysis for Synergy Innovation

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 Synergy Innovation's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Synergy Innovation has recently broken into profitability so their prior investments seem to be paying off. About four years ago the company was generating losses but things have turned around because it's now earning 4.3% on its capital. Not only that, but the company is utilizing 135% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In Conclusion...

Long story short, we're delighted to see that Synergy Innovation's reinvestment activities have paid off and the company is now profitable. Given the stock has declined 64% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to continue researching Synergy Innovation, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Synergy Innovation may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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