Has Wysiwyg Studios (KOSDAQ:299900) Got What It Takes To Become A Multi-Bagger?

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Wysiwyg Studios (KOSDAQ:299900), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Wysiwyg Studios:

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

0.017 = ₩1.3b ÷ (₩113b - ₩34b) (Based on the trailing twelve months to June 2020).

So, Wysiwyg Studios has an ROCE of 1.7%. Ultimately, that's a low return and it under-performs the Entertainment industry average of 7.6%.

View our latest analysis for Wysiwyg Studios

Historical performance is a great place to start when researching a stock so above you can see the gauge for Wysiwyg Studios' ROCE against it's prior returns. If you'd like to look at how Wysiwyg Studios has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Wysiwyg Studios' ROCE Trending?

The trend of ROCE doesn't look fantastic because it's fallen from 11% one year ago, while the business's capital employed increased by 26%. That being said, Wysiwyg Studios raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Wysiwyg Studios might not have received a full period of earnings contribution from it.

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 30%, which has impacted the ROCE. Without this increase, it's likely that ROCE would be even lower than 1.7%. Keep an eye on this ratio, because the business could encounter some new risks if this metric gets too high.

The Bottom Line On Wysiwyg Studios' ROCE

While returns have fallen for Wysiwyg Studios in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 10% in the last year. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Wysiwyg Studios does have some risks though, and we've spotted 2 warning signs for Wysiwyg Studios that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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