Coloray International Investment (KOSDAQ:900310) Will Want To Turn Around Its Return Trends

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 briefly looking over the numbers, we don't think Coloray International Investment (KOSDAQ:900310) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Coloray International Investment:

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

0.0013 = ₩351m ÷ (₩319b - ₩56b) (Based on the trailing twelve months to June 2024).

Therefore, Coloray International Investment has an ROCE of 0.1%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 7.1%.

View our latest analysis for Coloray International Investment

Historical performance is a great place to start when researching a stock so above you can see the gauge for Coloray International Investment's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Coloray International Investment.

What Does the ROCE Trend For Coloray International Investment Tell Us?

When we looked at the ROCE trend at Coloray International Investment, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 0.1% from 19% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 18%, which has impacted the ROCE. Without this increase, it's likely that ROCE would be even lower than 0.1%. Keep an eye on this ratio, because the business could encounter some new risks if this metric gets too high.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that Coloray International Investment is reinvesting for growth and has higher sales as a result. These growth trends haven't led to growth returns though, since the stock has fallen 59% over the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Coloray International Investment (of which 1 makes us a bit uncomfortable!) that you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.