The Return Trends At ASTORYLtd (KOSDAQ:241840) Look Promising

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at ASTORYLtd (KOSDAQ:241840) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for ASTORYLtd:

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

0.10 = ₩6.5b ÷ (₩94b - ₩29b) (Based on the trailing twelve months to March 2024).

Thus, ASTORYLtd has an ROCE of 10.0%. In absolute terms, that's a low return, but it's much better than the Entertainment industry average of 7.2%.

View our latest analysis for ASTORYLtd

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

What Can We Tell From ASTORYLtd's ROCE Trend?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last three years to 10.0%. The amount of capital employed has increased too, by 50%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 31%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that ASTORYLtd has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From ASTORYLtd's ROCE

To sum it up, ASTORYLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Given the stock has declined 23% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing: We've identified 3 warning signs with ASTORYLtd (at least 1 which can't be ignored) , and understanding these would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

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