Returns At AminologicsLtd (KOSDAQ:074430) Are On The Way Up

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. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at AminologicsLtd (KOSDAQ:074430) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for AminologicsLtd:

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

0.048 = ₩2.6b ÷ (₩60b - ₩6.0b) (Based on the trailing twelve months to December 2020).

So, AminologicsLtd has an ROCE of 4.8%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 7.9%.

View our latest analysis for AminologicsLtd

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

What Does the ROCE Trend For AminologicsLtd Tell Us?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 164% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

Our Take On AminologicsLtd's ROCE

To sum it up, AminologicsLtd is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has only returned 6.0% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you'd like to know about the risks facing AminologicsLtd, we've discovered 1 warning sign that you should be aware of.

While AminologicsLtd 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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