Should You Be Excited About Tokai Carbon Korea's (KOSDAQ:064760) Returns On Capital?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of Tokai Carbon Korea (KOSDAQ:064760) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Tokai Carbon Korea is:

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

0.29 = ₩73b ÷ (₩285b - ₩28b) (Based on the trailing twelve months to September 2020).

Thus, Tokai Carbon Korea has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 9.8%.

See our latest analysis for Tokai Carbon Korea

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

So How Is Tokai Carbon Korea's ROCE Trending?

We like the trends that we're seeing from Tokai Carbon Korea. The data shows that returns on capital have increased substantially over the last five years to 29%. The amount of capital employed has increased too, by 185%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Tokai Carbon Korea's ROCE

All in all, it's terrific to see that Tokai Carbon Korea is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we've found 1 warning sign for Tokai Carbon Korea that we think you should be aware of.

Tokai Carbon Korea is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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