Is Advanced Nano Products (KOSDAQ:121600) Likely To Turn Things Around?

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Advanced Nano Products (KOSDAQ:121600) and its ROCE trend, we weren't exactly thrilled.

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. To calculate this metric for Advanced Nano Products, this is the formula:

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

0.026 = ₩2.5b ÷ (₩106b - ₩8.6b) (Based on the trailing twelve months to September 2020).

Thus, Advanced Nano Products has an ROCE of 2.6%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 8.0%.

See our latest analysis for Advanced Nano Products

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Advanced Nano Products has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Advanced Nano Products Tell Us?

In terms of Advanced Nano Products' historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 12%, but since then they've fallen to 2.6%. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Bottom Line On Advanced Nano Products' ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Advanced Nano Products have fallen, meanwhile the business is employing more capital than it was five years ago. Since the stock has skyrocketed 115% over the last five years, it looks like investors have high expectations of the stock. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

Advanced Nano Products does have some risks, we noticed 3 warning signs (and 1 which is significant) we think you should know about.

While Advanced Nano Products may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.
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