Here’s What’s Happening With Returns At Tamul Multimedia (KOSDAQ:093640)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Tamul Multimedia (KOSDAQ:093640) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Tamul Multimedia:

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

0.0059 = ₩133m ÷ (₩32b - ₩9.0b) (Based on the trailing twelve months to September 2020).

Thus, Tamul Multimedia has an ROCE of 0.6%. 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 Tamul Multimedia

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

What Does the ROCE Trend For Tamul Multimedia Tell Us?

Tamul Multimedia has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.6% on its capital. Not only that, but the company is utilizing 114% more capital than before, but that's to be expected from a company trying to break into profitability. 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.

What We Can Learn From Tamul Multimedia's ROCE

Long story short, we're delighted to see that Tamul Multimedia's reinvestment activities have paid off and the company is now profitable. Astute investors may have an opportunity here because the stock has declined 66% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

Tamul Multimedia does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those can't be ignored...

While Tamul Multimedia 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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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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