KOLMAR BNHLtd (KOSDAQ:200130) Could Be Struggling To Allocate Capital

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating KOLMAR BNHLtd (KOSDAQ:200130), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on KOLMAR BNHLtd is:

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

0.056 = ₩25b ÷ (₩707b - ₩255b) (Based on the trailing twelve months to September 2024).

Therefore, KOLMAR BNHLtd has an ROCE of 5.6%. Ultimately, that's a low return and it under-performs the Personal Products industry average of 7.8%.

See our latest analysis for KOLMAR BNHLtd

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

What Does the ROCE Trend For KOLMAR BNHLtd Tell Us?

When we looked at the ROCE trend at KOLMAR BNHLtd, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 5.6% from 28% five years ago. However it looks like KOLMAR BNHLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

In summary, KOLMAR BNHLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 52% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think KOLMAR BNHLtd has the makings of a multi-bagger.

KOLMAR BNHLtd does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those can't be ignored...

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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.