Lumens' (KOSDAQ:038060) Returns On Capital Are Heading Higher

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Lumens (KOSDAQ:038060) looks quite promising in regards to its trends of return on capital.

What Is 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. Analysts use this formula to calculate it for Lumens:

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

0.027 = ₩2.8b ÷ (₩161b - ₩58b) (Based on the trailing twelve months to March 2024).

Thus, Lumens has an ROCE of 2.7%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 5.4%.

Check out our latest analysis for Lumens

Historical performance is a great place to start when researching a stock so above you can see the gauge for Lumens' 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 Lumens.

So How Is Lumens' ROCE Trending?

It's great to see that Lumens has started to generate some pre-tax earnings from prior investments. While the business is profitable now, it used to be incurring losses on invested capital five years ago. Additionally, the business is utilizing 51% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. Lumens could be selling under-performing assets since the ROCE is improving.

In Conclusion...

In summary, it's great to see that Lumens has been able to turn things around and earn higher returns on lower amounts of capital. Astute investors may have an opportunity here because the stock has declined 44% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Like most companies, Lumens 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.

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