The Trend Of High Returns At CLASSYS (KOSDAQ:214150) Has Us Very Interested

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of CLASSYS (KOSDAQ:214150) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for CLASSYS:

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

0.40 = ₩45b ÷ (₩124b - ₩13b) (Based on the trailing twelve months to September 2020).

Therefore, CLASSYS has an ROCE of 40%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.

View our latest analysis for CLASSYS

Above you can see how the current ROCE for CLASSYS compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering CLASSYS here for free.

How Are Returns Trending?

We like the trends that we're seeing from CLASSYS. Over the last three years, returns on capital employed have risen substantially to 40%. The amount of capital employed has increased too, by 172%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

One more thing to note, CLASSYS has decreased current liabilities to 10% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that CLASSYS has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From CLASSYS' ROCE

In summary, it's great to see that CLASSYS can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 150% total return over the last three years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if CLASSYS can keep these trends up, it could have a bright future ahead.

While CLASSYS looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether A214150 is currently trading for a fair price.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

If you decide to trade CLASSYS, 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 (at) simplywallst.com.