Will the Promising Trends At Benoholdings (KOSDAQ:206400) Continue?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Benoholdings (KOSDAQ:206400) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Benoholdings, this is the formula:

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

0.027 = ₩1.1b ÷ (₩71b - ₩30b) (Based on the trailing twelve months to September 2020).

Thus, Benoholdings has an ROCE of 2.7%. 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 Benoholdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Benoholdings' ROCE against it's prior returns. If you're interested in investigating Benoholdings' past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Benoholdings has recently broken into profitability so their prior investments seem to be paying off. About four years ago the company was generating losses but things have turned around because it's now earning 2.7% on its capital. And unsurprisingly, like most companies trying to break into the black, Benoholdings is utilizing 86% more capital than it was four years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 42% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

In Conclusion...

To the delight of most shareholders, Benoholdings has now broken into profitability. Astute investors may have an opportunity here because the stock has declined 16% in the last three years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

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

While Benoholdings 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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