Here's What's Concerning About Eugene TechnologyLtd's (KOSDAQ:084370) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. However, after investigating Eugene TechnologyLtd (KOSDAQ:084370), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Eugene TechnologyLtd:

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

0.082 = ₩35b ÷ (₩502b - ₩76b) (Based on the trailing twelve months to September 2024).

Thus, Eugene TechnologyLtd has an ROCE of 8.2%. On its own that's a low return, but compared to the average of 6.5% generated by the Semiconductor industry, it's much better.

Check out our latest analysis for Eugene TechnologyLtd

In the above chart we have measured Eugene TechnologyLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Eugene TechnologyLtd for free.

The Trend Of ROCE

On the surface, the trend of ROCE at Eugene TechnologyLtd doesn't inspire confidence. To be more specific, ROCE has fallen from 10% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Key Takeaway

While returns have fallen for Eugene TechnologyLtd in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And long term investors must be optimistic going forward because the stock has returned a huge 113% to shareholders in the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

While Eugene TechnologyLtd doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for A084370 on our platform.

While Eugene TechnologyLtd isn't earning the highest return, check out this free list of companies that are 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.