Will Nat GamesLtd (KOSDAQ:225570) Repeat Its Return Growth Of The Past?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. So when we looked at the ROCE trend of Nat GamesLtd (KOSDAQ:225570) we really liked what we saw.

Understanding 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 Nat GamesLtd, this is the formula:

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

0.29 = ₩23b ÷ (₩94b - ₩14b) (Based on the trailing twelve months to September 2020).

So, Nat GamesLtd has an ROCE of 29%. That's a fantastic return and not only that, it outpaces the average of 8.4% earned by companies in a similar industry.

View our latest analysis for Nat GamesLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Nat GamesLtd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Nat GamesLtd's ROCE Trend?

Nat GamesLtd has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses three years ago, but now it's earning 29% which is a sight for sore eyes. In addition to that, Nat GamesLtd is employing 161% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a related note, the company's ratio of current liabilities to total assets has decreased to 15%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Nat GamesLtd has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From Nat GamesLtd's ROCE

To the delight of most shareholders, Nat GamesLtd has now broken into profitability. And since the stock has fallen 16% over the last three years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

Nat GamesLtd is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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