Tokai Carbon Korea (KOSDAQ:064760) Will Want To Turn Around Its Return Trends

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. However, after investigating Tokai Carbon Korea (KOSDAQ:064760), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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 Tokai Carbon Korea:

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

0.16 = ₩81b ÷ (₩564b - ₩45b) (Based on the trailing twelve months to December 2024).

So, Tokai Carbon Korea has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 5.7% generated by the Semiconductor industry.

View our latest analysis for Tokai Carbon Korea

Above you can see how the current ROCE for Tokai Carbon Korea compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Tokai Carbon Korea for free.

The Trend Of ROCE

In terms of Tokai Carbon Korea's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 16% from 27% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Tokai Carbon Korea's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Tokai Carbon Korea. And the stock has followed suit returning a meaningful 47% to shareholders over the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

Like most companies, Tokai Carbon Korea does come with some risks, and we've found 1 warning sign that you should be aware of.

While Tokai Carbon Korea isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.