We Like These Underlying Return On Capital Trends At Micro Contact Solution (KOSDAQ:098120)

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Micro Contact Solution (KOSDAQ:098120) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Micro Contact Solution:

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

0.078 = ₩4.8b ÷ (₩70b - ₩7.6b) (Based on the trailing twelve months to September 2024).

Therefore, Micro Contact Solution has an ROCE of 7.8%. On its own that's a low return, but compared to the average of 6.4% generated by the Semiconductor industry, it's much better.

See our latest analysis for Micro Contact Solution

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'd like to look at how Micro Contact Solution has performed in the past in other metrics, you can view this free graph of Micro Contact Solution's past earnings, revenue and cash flow.

So How Is Micro Contact Solution's ROCE Trending?

We're delighted to see that Micro Contact Solution is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 7.8% which is a sight for sore eyes. In addition to that, Micro Contact Solution is employing 88% more capital than previously which is expected of a company that's 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.

The Bottom Line

In summary, it's great to see that Micro Contact Solution has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a solid 82% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Micro Contact Solution does have some risks though, and we've spotted 3 warning signs 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.