ENVIONEERLtd's (KOSDAQ:317870) Returns On Capital Are Heading Higher

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at ENVIONEERLtd (KOSDAQ:317870) and its trend of ROCE, we really liked what we saw.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on ENVIONEERLtd is:

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

0.016 = ₩745m ÷ (₩62b - ₩15b) (Based on the trailing twelve months to September 2023).

So, ENVIONEERLtd has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 6.2%.

Check out our latest analysis for ENVIONEERLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for ENVIONEERLtd's ROCE against it's prior returns. If you'd like to look at how ENVIONEERLtd has performed in the past in other metrics, you can view this free graph of ENVIONEERLtd's past earnings, revenue and cash flow.

What Can We Tell From ENVIONEERLtd's ROCE Trend?

ENVIONEERLtd has recently broken into profitability so their prior investments seem to be paying off. About two years ago the company was generating losses but things have turned around because it's now earning 1.6% on its capital. In addition to that, ENVIONEERLtd is employing 59% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line On ENVIONEERLtd's ROCE

Overall, ENVIONEERLtd gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 109% total return over the last three years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

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

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.