Innox (KOSDAQ:088390) Is Experiencing Growth In Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Innox (KOSDAQ:088390) looks quite promising in regards to its trends of return on capital.

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Understanding Return On Capital Employed (ROCE)

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 Innox is:

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

0.025 = ₩6.3b ÷ (₩318b - ₩62b) (Based on the trailing twelve months to December 2024).

Thus, Innox has an ROCE of 2.5%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 5.5%.

See our latest analysis for Innox

Historical performance is a great place to start when researching a stock so above you can see the gauge for Innox's ROCE against it's prior returns. If you're interested in investigating Innox's past further, check out this free graph covering Innox's past earnings, revenue and cash flow .

How Are Returns Trending?

The fact that Innox is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 2.5% on its capital. And unsurprisingly, like most companies trying to break into the black, Innox is utilizing 72% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line

Long story short, we're delighted to see that Innox's reinvestment activities have paid off and the company is now profitable. Since the stock has only returned 34% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

On a final note, we found 2 warning signs for Innox (1 is a bit unpleasant) you should be aware of.

While Innox 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.