Investors Could Be Concerned With LOT VACUUM's (KOSDAQ:083310) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at LOT VACUUM (KOSDAQ:083310) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on LOT VACUUM is:

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

0.023 = ₩3.8b ÷ (₩228b - ₩60b) (Based on the trailing twelve months to December 2020).

Therefore, LOT VACUUM has an ROCE of 2.3%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 8.7%.

Check out our latest analysis for LOT VACUUM

Above you can see how the current ROCE for LOT VACUUM compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

We weren't thrilled with the trend because LOT VACUUM's ROCE has reduced by 82% over the last five years, while the business employed 113% more capital. That being said, LOT VACUUM raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. It's unlikely that all of the funds raised have been put to work yet, so as a consequence LOT VACUUM might not have received a full period of earnings contribution from it.

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 26%, which has impacted the ROCE. Without this increase, it's likely that ROCE would be even lower than 2.3%. While the ratio isn't currently too high, it's worth keeping an eye on this because if it gets particularly high, the business could then face some new elements of risk.

What We Can Learn From LOT VACUUM's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that LOT VACUUM is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 54% over the last five years, it would appear that investors are upbeat about the future. 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.

If you want to continue researching LOT VACUUM, you might be interested to know about the 2 warning signs that our analysis has discovered.

While LOT VACUUM may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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