What Do The Returns On Capital At S-EnergyLtd (KOSDAQ:095910) Tell Us?

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at S-EnergyLtd (KOSDAQ:095910) and its ROCE trend, we weren't exactly thrilled.

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

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 S-EnergyLtd:

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

0.022 = ₩3.7b ÷ (₩322b - ₩154b) (Based on the trailing twelve months to September 2020).

Therefore, S-EnergyLtd has an ROCE of 2.2%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 9.8%.

View our latest analysis for S-EnergyLtd

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're interested in investigating S-EnergyLtd's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Over the past five years, S-EnergyLtd's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at S-EnergyLtd in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

On a separate but related note, it's important to know that S-EnergyLtd has a current liabilities to total assets ratio of 48%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On S-EnergyLtd's ROCE

In a nutshell, S-EnergyLtd has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly then, the total return to shareholders over the last five years has been flat. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for S-EnergyLtd (of which 1 is a bit unpleasant!) that you should know about.

While S-EnergyLtd 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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