Here's What's Concerning About OHEIM& CompanyLtd's (KOSDAQ:309930) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. In light of that, when we looked at OHEIM& CompanyLtd (KOSDAQ:309930) and its ROCE trend, we weren't exactly thrilled.

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. To calculate this metric for OHEIM& CompanyLtd, this is the formula:

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

0.043 = ₩2.5b ÷ (₩65b - ₩8.6b) (Based on the trailing twelve months to March 2024).

So, OHEIM& CompanyLtd has an ROCE of 4.3%. On its own, that's a low figure but it's around the 5.4% average generated by the Specialty Retail industry.

See our latest analysis for OHEIM& CompanyLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for OHEIM& CompanyLtd's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of OHEIM& CompanyLtd.

What Can We Tell From OHEIM& CompanyLtd's ROCE Trend?

The trend of ROCE doesn't look fantastic because it's fallen from 21% five years ago, while the business's capital employed increased by 527%. That being said, OHEIM& CompanyLtd raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with OHEIM& CompanyLtd's earnings and if they change as a result from the capital raise.

On a related note, OHEIM& CompanyLtd has decreased its current liabilities to 13% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

Our Take On OHEIM& CompanyLtd's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for OHEIM& CompanyLtd. These growth trends haven't led to growth returns though, since the stock has fallen 46% over the last three years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

OHEIM& CompanyLtd does have some risks though, and we've spotted 1 warning sign for OHEIM& CompanyLtd 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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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