Should We Be Excited About The Trends Of Returns At Eugene TechnologyLtd (KOSDAQ:084370)?

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. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Eugene TechnologyLtd (KOSDAQ:084370) and its ROCE trend, we weren't exactly thrilled.

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

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 Eugene TechnologyLtd, this is the formula:

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

0.055 = ₩15b ÷ (₩303b - ₩39b) (Based on the trailing twelve months to September 2020).

So, Eugene TechnologyLtd has an ROCE of 5.5%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 9.8%.

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 to see what analysts are forecasting going forward, you should check out our free report for Eugene TechnologyLtd.

So How Is Eugene TechnologyLtd's ROCE Trending?

On the surface, the trend of ROCE at Eugene TechnologyLtd doesn't inspire confidence. Around five years ago the returns on capital were 10%, but since then they've fallen to 5.5%. However it looks like Eugene TechnologyLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On Eugene TechnologyLtd's ROCE

Bringing it all together, while we're somewhat encouraged by Eugene TechnologyLtd's reinvestment in its own business, we're aware that returns are shrinking. Yet to long term shareholders the stock has gifted them an incredible 193% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Like most companies, Eugene TechnologyLtd does come with some risks, and we've found 1 warning sign that you should be aware of.

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This article by Simply Wall St is general in nature. 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.
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