We Like These Underlying Trends At Seoul Semiconductor (KOSDAQ:046890)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Speaking of which, we noticed some great changes in Seoul Semiconductor's (KOSDAQ:046890) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

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 Seoul Semiconductor, this is the formula:

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

0.064 = ₩59b ÷ (₩1.4t - ₩508b) (Based on the trailing twelve months to September 2020).

So, Seoul Semiconductor has an ROCE of 6.4%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 9.8%.

See our latest analysis for Seoul Semiconductor

In the above chart we have measured Seoul Semiconductor's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Seoul Semiconductor.

So How Is Seoul Semiconductor's ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 6.4%. Basically the business is earning more per dollar of capital invested and in addition to that, 28% more capital is being employed now too. So we're very much inspired by what we're seeing at Seoul Semiconductor thanks to its ability to profitably reinvest capital.

Our Take On Seoul Semiconductor's ROCE

To sum it up, Seoul Semiconductor has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Considering the stock has delivered 28% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a final note, we've found 2 warning signs for Seoul Semiconductor that we think 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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