Capital Investment Trends At EchomarketingLtd (KOSDAQ:230360) Look Strong

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. That's why when we briefly looked at EchomarketingLtd's (KOSDAQ:230360) ROCE trend, we were very happy with what we saw.

Understanding 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. Analysts use this formula to calculate it for EchomarketingLtd:

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

0.38 = ₩59b ÷ (₩195b - ₩40b) (Based on the trailing twelve months to December 2020).

Therefore, EchomarketingLtd has an ROCE of 38%. That's a fantastic return and not only that, it outpaces the average of 6.8% earned by companies in a similar industry.

View our latest analysis for EchomarketingLtd

Above you can see how the current ROCE for EchomarketingLtd 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.

What Does the ROCE Trend For EchomarketingLtd Tell Us?

In terms of EchomarketingLtd's history of ROCE, it's quite impressive. Over the past five years, ROCE has remained relatively flat at around 38% and the business has deployed 504% 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 EchomarketingLtd can keep this up, we'd be very optimistic about its future.

On a side note, EchomarketingLtd has done well to reduce current liabilities to 21% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line On EchomarketingLtd'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. On top of that, the stock has rewarded shareholders with a remarkable 515% return to those who've held over the last three years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

EchomarketingLtd does have some risks though, and we've spotted 1 warning sign for EchomarketingLtd that you might be interested in.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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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