The Trends At Coloray International Investment (KOSDAQ:900310) That You Should Know About

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Coloray International Investment (KOSDAQ:900310) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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)

0.15 = ₩25b ÷ (₩193b - ₩19b) (Based on the trailing twelve months to June 2020).

Therefore, Coloray International Investment has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 8.5% it's much better.

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 want to delve into the historical earnings, revenue and cash flow of Coloray International Investment, check out these free graphs here.

How Are Returns Trending?

When we looked at the ROCE trend at Coloray International Investment, we didn't gain much confidence. Over the last four years, returns on capital have decreased to 15% from 60% four years ago. However it looks like Coloray International Investment might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a related note, Coloray International Investment has decreased its current liabilities to 9.9% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

What We Can Learn From Coloray International Investment's ROCE

To conclude, we've found that Coloray International Investment is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 31% in the last three years. Therefore based on the analysis done in this article, we don't think Coloray International Investment has the makings of a multi-bagger.

Coloray International Investment does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is significant...

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. 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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