Genie Music (KOSDAQ:043610) Might Be Having Difficulty Using Its Capital Effectively

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Genie Music (KOSDAQ:043610) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Our free stock report includes 2 warning signs investors should be aware of before investing in Genie Music. Read for free now.

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. The formula for this calculation on Genie Music is:

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

0.033 = ₩7.6b ÷ (₩352b - ₩122b) (Based on the trailing twelve months to December 2024).

So, Genie Music has an ROCE of 3.3%. In absolute terms, that's a low return and it also under-performs the Entertainment industry average of 6.1%.

View our latest analysis for Genie Music

Above you can see how the current ROCE for Genie Music compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Genie Music .

What Does the ROCE Trend For Genie Music Tell Us?

On the surface, the trend of ROCE at Genie Music doesn't inspire confidence. Around five years ago the returns on capital were 5.7%, but since then they've fallen to 3.3%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. 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.

Our Take On Genie Music's ROCE

In summary, Genie Music is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last five years, the stock has given away 17% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you'd like to know more about Genie Music, we've spotted 2 warning signs, and 1 of them is significant.

While Genie Music 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.