Some Investors May Be Worried About EchomarketingLtd's (KOSDAQ:230360) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at EchomarketingLtd (KOSDAQ:230360) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. To calculate this metric for EchomarketingLtd, this is the formula:

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

0.17 = ₩49b ÷ (₩384b - ₩95b) (Based on the trailing twelve months to June 2024).

Therefore, EchomarketingLtd has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Multiline Retail industry average of 5.0% it's much better.

Check out 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'd like to see what analysts are forecasting going forward, you should check out our free analyst report for EchomarketingLtd .

What Can We Tell From EchomarketingLtd's ROCE Trend?

On the surface, the trend of ROCE at EchomarketingLtd doesn't inspire confidence. Around five years ago the returns on capital were 31%, but since then they've fallen to 17%. 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.

Our Take On EchomarketingLtd's ROCE

Bringing it all together, while we're somewhat encouraged by EchomarketingLtd's reinvestment in its own business, we're aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 42% in the last five years. Therefore based on the analysis done in this article, we don't think EchomarketingLtd has the makings of a multi-bagger.

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

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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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.