Many Would Be Envious Of Soop's (KOSDAQ:067160) Excellent Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. That's why when we briefly looked at Soop's (KOSDAQ:067160) ROCE trend, we were very happy with what we saw.

What Is 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. Analysts use this formula to calculate it for Soop:

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

0.32 = ₩110b ÷ (₩616b - ₩275b) (Based on the trailing twelve months to June 2024).

Thus, Soop has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Interactive Media and Services industry average of 12%.

See our latest analysis for Soop

In the above chart we have measured Soop's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Soop .

What Can We Tell From Soop's ROCE Trend?

We'd be pretty happy with returns on capital like Soop. Over the past five years, ROCE has remained relatively flat at around 32% and the business has deployed 183% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Soop can keep this up, we'd be very optimistic about its future.

On a separate but related note, it's important to know that Soop has a current liabilities to total assets ratio of 45%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Soop's ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

While Soop looks impressive, no company is worth an infinite price. The intrinsic value infographic for A067160 helps visualize whether it is currently trading for a fair price.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.