Should We Be Excited About The Trends Of Returns At Green Cross Medical Science (KOSDAQ:142280)?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. Although, when we looked at Green Cross Medical Science (KOSDAQ:142280), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Green Cross Medical Science:

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

0.015 = ₩939m ÷ (₩94b - ₩31b) (Based on the trailing twelve months to September 2020).

So, Green Cross Medical Science has an ROCE of 1.5%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 13%.

See our latest analysis for Green Cross Medical Science

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

How Are Returns Trending?

Unfortunately, the trend isn't great with ROCE falling from 7.5% five years ago, while capital employed has grown 48%. That being said, Green Cross Medical Science raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. Green Cross Medical Science probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

The Key Takeaway

While returns have fallen for Green Cross Medical Science in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. In light of this, the stock has only gained 24% over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

Green Cross Medical Science does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those make us uncomfortable...

While Green Cross Medical Science isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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