Returns On Capital At Coloray International Investment (KOSDAQ:900310) Paint A Concerning Picture

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Coloray International Investment (KOSDAQ:900310) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

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)

0.023 = ₩5.7b ÷ (₩292b - ₩43b) (Based on the trailing twelve months to December 2023).

Thus, Coloray International Investment has an ROCE of 2.3%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 6.6%.

Check out 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'd like to look at how Coloray International Investment has performed in the past in other metrics, you can view this free graph of Coloray International Investment's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

In terms of Coloray International Investment's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 21% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Coloray International Investment's ROCE

While returns have fallen for Coloray International Investment in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. However, despite the promising trends, the stock has fallen 57% over the last five years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

One more thing: We've identified 4 warning signs with Coloray International Investment (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

While Coloray International Investment 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.