OKins ElectronicsLtd (KOSDAQ:080580) Will Be Hoping To Turn Its Returns On Capital Around

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. 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.

What Is 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. The formula for this calculation on OKins ElectronicsLtd is:

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

0.023 = ₩1.4b ÷ (₩91b - ₩28b) (Based on the trailing twelve months to June 2024).

So, OKins ElectronicsLtd has an ROCE of 2.3%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 5.4%.

Check out 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of OKins ElectronicsLtd.

So How Is OKins ElectronicsLtd's ROCE Trending?

We weren't thrilled with the trend because OKins ElectronicsLtd's ROCE has reduced by 65% over the last five years, while the business employed 79% 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. It's unlikely that all of the funds raised have been put to work yet, so as a consequence OKins ElectronicsLtd might not have received a full period of earnings contribution from it.

Our Take On OKins ElectronicsLtd's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that OKins ElectronicsLtd is reinvesting for growth and has higher sales as a result. And the stock has done incredibly well with a 155% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

One more thing: We've identified 3 warning signs with OKins ElectronicsLtd (at least 1 which is a bit unpleasant) , and understanding them would certainly be useful.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.