Returns On Capital - An Important Metric For CU Medical Systems (KOSDAQ:115480)

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at CU Medical Systems (KOSDAQ:115480) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on CU Medical Systems is:

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

0.02 = ₩2.2b ÷ (₩167b - ₩58b) (Based on the trailing twelve months to June 2020).

So, CU Medical Systems has an ROCE of 2.0%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 13%.

View our latest analysis for CU Medical Systems

Historical performance is a great place to start when researching a stock so above you can see the gauge for CU Medical Systems' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of CU Medical Systems, check out these free graphs here.

How Are Returns Trending?

CU Medical Systems has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 2.0% which is a sight for sore eyes. In addition to that, CU Medical Systems is employing 163% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Key Takeaway

In summary, it's great to see that CU Medical Systems has managed to break into profitability and is continuing to reinvest in its business. Astute investors may have an opportunity here because the stock has declined 19% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we found 4 warning signs for CU Medical Systems (1 shouldn't be ignored) you should be aware of.

While CU Medical Systems 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.

If you decide to trade CU Medical Systems, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.