There's Been No Shortage Of Growth Recently For Cosmax's (KRX:192820) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Cosmax's (KRX:192820) returns on capital, so let's have a look.

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 Cosmax:

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

0.19 = ₩147b ÷ (₩1.9t - ₩1.1t) (Based on the trailing twelve months to June 2024).

So, Cosmax has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 9.2% generated by the Personal Products industry.

See our latest analysis for Cosmax

In the above chart we have measured Cosmax's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Cosmax for free.

What Can We Tell From Cosmax's ROCE Trend?

Cosmax is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 19%. Basically the business is earning more per dollar of capital invested and in addition to that, 95% more capital is being employed now too. So we're very much inspired by what we're seeing at Cosmax thanks to its ability to profitably reinvest capital.

Another thing to note, Cosmax has a high ratio of current liabilities to total assets of 58%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Cosmax's ROCE

All in all, it's terrific to see that Cosmax is reaping the rewards from prior investments and is growing its capital base. And with a respectable 81% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Cosmax can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 1 warning sign facing Cosmax that you might find interesting.

While Cosmax 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. 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.