Here's What's Concerning About EchomarketingLtd's (KOSDAQ:230360) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at EchomarketingLtd (KOSDAQ:230360) and its ROCE trend, we weren't exactly thrilled.

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

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. The formula for this calculation on EchomarketingLtd is:

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

0.19 = ₩54b ÷ (₩374b - ₩94b) (Based on the trailing twelve months to March 2024).

Thus, EchomarketingLtd has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 5.0% generated by the Multiline Retail industry.

See our latest analysis for EchomarketingLtd

In the above chart we have measured EchomarketingLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for EchomarketingLtd .

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at EchomarketingLtd, we didn't gain much confidence. Around five years ago the returns on capital were 27%, but since then they've fallen to 19%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

Bringing it all together, while we're somewhat encouraged by EchomarketingLtd's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 15% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think EchomarketingLtd has the makings of a multi-bagger.

Like most companies, EchomarketingLtd does come with some risks, and we've found 1 warning sign that you should be aware of.

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