Investors Will Want Gemvaxzio's (KOSDAQ:041590) Growth In ROCE To Persist

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Gemvaxzio (KOSDAQ:041590) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

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 Gemvaxzio, this is the formula:

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

0.0032 = ₩286m ÷ (₩133b - ₩44b) (Based on the trailing twelve months to December 2020).

Thus, Gemvaxzio has an ROCE of 0.3%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 8.8%.

See our latest analysis for Gemvaxzio

Historical performance is a great place to start when researching a stock so above you can see the gauge for Gemvaxzio's ROCE against it's prior returns. If you're interested in investigating Gemvaxzio's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Gemvaxzio Tell Us?

The fact that Gemvaxzio is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.3% on its capital. Not only that, but the company is utilizing 38% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 33%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

Our Take On Gemvaxzio's ROCE

Overall, Gemvaxzio gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. However the stock is down a substantial 86% in the last five years so there could be other areas of the business hurting its prospects. Still, it's worth doing some further research to see if the trends will continue into the future.

One more thing: We've identified 3 warning signs with Gemvaxzio (at least 1 which is significant) , and understanding them would certainly be useful.

While Gemvaxzio 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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