OKins ElectronicsLtd (KOSDAQ:080580) May Have Issues Allocating Its Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think OKins ElectronicsLtd (KOSDAQ:080580) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding 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. Analysts use this formula to calculate it for OKins ElectronicsLtd:

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

0.006 = ₩374m ÷ (₩91b - ₩29b) (Based on the trailing twelve months to December 2023).

Thus, OKins ElectronicsLtd has an ROCE of 0.6%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 5.4%.

See our latest analysis for OKins ElectronicsLtd

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

What Does the ROCE Trend For OKins ElectronicsLtd Tell Us?

We weren't thrilled with the trend because OKins ElectronicsLtd's ROCE has reduced by 84% over the last five years, while the business employed 91% more capital. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with OKins ElectronicsLtd's earnings and if they change as a result from the capital raise.

The Key Takeaway

From the above analysis, we find it rather worrisome that returns on capital and sales for OKins ElectronicsLtd have fallen, meanwhile the business is employing more capital than it was five years ago. The market must be rosy on the stock's future because even though the underlying trends aren't too encouraging, the stock has soared 340%. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

If you want to know some of the risks facing OKins ElectronicsLtd we've found 5 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

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.