Investors Shouldn't Overlook Hanyang Digitech's (KOSDAQ:078350) Impressive Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Hanyang Digitech (KOSDAQ:078350) we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Hanyang Digitech is:

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

0.20 = ₩33b ÷ (₩259b - ₩99b) (Based on the trailing twelve months to June 2024).

Thus, Hanyang Digitech has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 5.4% earned by companies in a similar industry.

See our latest analysis for Hanyang Digitech

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

What The Trend Of ROCE Can Tell Us

We're delighted to see that Hanyang Digitech is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 20% on its capital. And unsurprisingly, like most companies trying to break into the black, Hanyang Digitech is utilizing 220% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Key Takeaway

Long story short, we're delighted to see that Hanyang Digitech's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 129% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for A078350 that compares the share price and estimated value.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.