Returns Are Gaining Momentum At Revu (KOSDAQ:443250)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Revu's (KOSDAQ:443250) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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 Revu:

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

0.072 = ₩4.4b ÷ (₩81b - ₩20b) (Based on the trailing twelve months to September 2024).

So, Revu has an ROCE of 7.2%. Ultimately, that's a low return and it under-performs the Interactive Media and Services industry average of 11%.

Check out our latest analysis for Revu

In the above chart we have measured Revu's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Revu for free.

What Can We Tell From Revu's ROCE Trend?

We're delighted to see that Revu is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses four years ago, but now it's earning 7.2% which is a sight for sore eyes. Not only that, but the company is utilizing 316% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On Revu's ROCE

To the delight of most shareholders, Revu has now broken into profitability. And with a respectable 8.6% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Revu can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 1 warning sign with Revu and understanding it should be part of your investment process.

While Revu isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.