What We Make Of NHN Bugs' (KOSDAQ:104200) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, NHN Bugs (KOSDAQ:104200) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for NHN Bugs, this is the formula:

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

0.028 = ₩2.0b ÷ (₩94b - ₩22b) (Based on the trailing twelve months to September 2020).

Thus, NHN Bugs has an ROCE of 2.8%. In absolute terms, that's a low return and it also under-performs the Entertainment industry average of 8.4%.

View our latest analysis for NHN Bugs

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

The Trend Of ROCE

We're delighted to see that NHN Bugs is reaping rewards from its investments and has now broken into profitability. The company was generating losses four years ago, but has managed to turn it around and as we saw earlier is now earning 2.8%, which is always encouraging. 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. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

In Conclusion...

To bring it all together, NHN Bugs has done well to increase the returns it's generating from its capital employed. Astute investors may have an opportunity here because the stock has declined 54% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know about the risks facing NHN Bugs, we've discovered 1 warning sign that you should be aware of.

While NHN Bugs 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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