Investors Will Want Micro Contact Solution's (KOSDAQ:098120) Growth In ROCE To Persist

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Micro Contact Solution (KOSDAQ:098120) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

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 Micro Contact Solution, this is the formula:

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

0.18 = ₩10b ÷ (₩66b - ₩8.3b) (Based on the trailing twelve months to September 2023).

Thus, Micro Contact Solution has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 7.1% it's much better.

Check out our latest analysis for Micro Contact Solution

Historical performance is a great place to start when researching a stock so above you can see the gauge for Micro Contact Solution's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Micro Contact Solution.

What Can We Tell From Micro Contact Solution's ROCE Trend?

Micro Contact Solution has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 18% which is a sight for sore eyes. Not only that, but the company is utilizing 54% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From Micro Contact Solution's ROCE

To the delight of most shareholders, Micro Contact Solution has now broken into profitability. Since the stock has returned a staggering 289% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Micro Contact Solution does have some risks though, and we've spotted 1 warning sign for Micro Contact Solution that you might be interested in.

While Micro Contact Solution 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. 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.