We're Watching These Trends At Nasmedia (KOSDAQ:089600)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Nasmedia's (KOSDAQ:089600) trend of ROCE, we liked what we saw.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Nasmedia:

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

0.12 = ₩26b ÷ (₩388b - ₩182b) (Based on the trailing twelve months to September 2020).

So, Nasmedia has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Media industry average of 9.3% it's much better.

See our latest analysis for Nasmedia

Above you can see how the current ROCE for Nasmedia 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 report on analyst forecasts for the company.

The Trend Of ROCE

While the returns on capital are good, they haven't moved much. The company has consistently earned 12% for the last four years, and the capital employed within the business has risen 87% in that time. 12% is a pretty standard return, and it provides some comfort knowing that Nasmedia has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a separate but related note, it's important to know that Nasmedia has a current liabilities to total assets ratio of 47%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Key Takeaway

To sum it up, Nasmedia has simply been reinvesting capital steadily, at those decent rates of return. Yet over the last five years the stock has declined 34%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

On a separate note, we've found 1 warning sign for Nasmedia you'll probably want to know about.

While Nasmedia isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

If you decide to trade Nasmedia, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.