Will The ROCE Trend At YTNLtd (KOSDAQ:040300) Continue?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, YTNLtd (KOSDAQ:040300) looks quite promising in regards to its trends of return on capital.

Understanding 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 YTNLtd, this is the formula:

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

0.013 = ₩3.5b ÷ (₩286b - ₩17b) (Based on the trailing twelve months to September 2020).

Therefore, YTNLtd has an ROCE of 1.3%. Ultimately, that's a low return and it under-performs the Media industry average of 9.3%.

Check out our latest analysis for YTNLtd

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

So How Is YTNLtd's ROCE Trending?

YTNLtd has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 1.3% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

What We Can Learn From YTNLtd's ROCE

As discussed above, YTNLtd appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with a respectable 45% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 2 warning signs for YTNLtd you'll probably want to know about.

While YTNLtd 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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