Advanced Nano Products (KOSDAQ:121600) Will Want To Turn Around Its Return Trends

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 Advanced Nano Products (KOSDAQ:121600), we don't think it's current trends fit the mold of a multi-bagger.

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 Advanced Nano Products:

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

0.022 = ₩9.5b ÷ (₩433b - ₩8.7b) (Based on the trailing twelve months to June 2024).

So, Advanced Nano Products has an ROCE of 2.2%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 7.1%.

Check out our latest analysis for Advanced Nano Products

In the above chart we have measured Advanced Nano Products' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Advanced Nano Products .

What Can We Tell From Advanced Nano Products' ROCE Trend?

We weren't thrilled with the trend because Advanced Nano Products' ROCE has reduced by 69% over the last five years, while the business employed 345% more capital. Usually this isn't ideal, but given Advanced Nano Products conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. Advanced Nano Products 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 Bottom Line On Advanced Nano Products' ROCE

Bringing it all together, while we're somewhat encouraged by Advanced Nano Products' reinvestment in its own business, we're aware that returns are shrinking. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 507% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a final note, we found 4 warning signs for Advanced Nano Products (1 is a bit unpleasant) you should be aware of.

While Advanced Nano Products 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.