Here's What's Concerning About Protec's (KOSDAQ:053610) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Protec (KOSDAQ:053610) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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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. To calculate this metric for Protec, this is the formula:

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

0.041 = ₩13b ÷ (₩377b - ₩46b) (Based on the trailing twelve months to December 2024).

Therefore, Protec has an ROCE of 4.1%. 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 Protec

Above you can see how the current ROCE for Protec compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Protec .

What Does the ROCE Trend For Protec Tell Us?

On the surface, the trend of ROCE at Protec doesn't inspire confidence. Around five years ago the returns on capital were 22%, but since then they've fallen to 4.1%. However it looks like Protec might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

In Conclusion...

To conclude, we've found that Protec is reinvesting in the business, but returns have been falling. Although the market must be expecting these trends to improve because the stock has gained 97% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Protec does have some risks though, and we've spotted 1 warning sign for Protec 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.