Avaco (KOSDAQ:083930) Is Doing The Right Things To Multiply Its Share Price

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Avaco's (KOSDAQ:083930) returns on capital, so let's have a look.

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. To calculate this metric for Avaco, this is the formula:

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

0.16 = ₩23b ÷ (₩210b - ₩67b) (Based on the trailing twelve months to December 2020).

Thus, Avaco has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 8.8% it's much better.

See our latest analysis for Avaco

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Avaco, check out these free graphs here.

So How Is Avaco's ROCE Trending?

The trends we've noticed at Avaco are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 41% more capital is being employed now too. So we're very much inspired by what we're seeing at Avaco thanks to its ability to profitably reinvest capital.

The Bottom Line On Avaco's ROCE

All in all, it's terrific to see that Avaco is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 169% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Avaco can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 2 warning signs facing Avaco that you might find interesting.

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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