There Are Reasons To Feel Uneasy About OHEIM& CompanyLtd's (KOSDAQ:309930) Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think OHEIM& CompanyLtd (KOSDAQ:309930) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its 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)

0.032 = ₩1.3b ÷ (₩64b - ₩24b) (Based on the trailing twelve months to June 2024).

So, OHEIM& CompanyLtd has an ROCE of 3.2%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 12%.

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're interested in investigating OHEIM& CompanyLtd's past further, check out this free graph covering OHEIM& CompanyLtd's past earnings, revenue and cash flow.

How Are Returns Trending?

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 318%. 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. OHEIM& CompanyLtd probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

The Bottom Line

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 57% 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, we noticed 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

While OHEIM& CompanyLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.