Finetechnix.Ltd (KOSDAQ:106240) Is Looking To Continue Growing Its Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential 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. Speaking of which, we noticed some great changes in Finetechnix.Ltd's (KOSDAQ:106240) returns on capital, so let's have a look.

Understanding 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. To calculate this metric for Finetechnix.Ltd, this is the formula:

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

0.12 = ₩11b ÷ (₩139b - ₩52b) (Based on the trailing twelve months to December 2020).

Therefore, Finetechnix.Ltd has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.8% generated by the Semiconductor industry.

View our latest analysis for Finetechnix.Ltd

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 Finetechnix.Ltd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Finetechnix.Ltd's ROCE Trend?

Finetechnix.Ltd has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 143%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Finetechnix.Ltd appears to been achieving more with less, since the business is using 36% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 38%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Finetechnix.Ltd has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Finetechnix.Ltd's ROCE

In summary, it's great to see that Finetechnix.Ltd has been able to turn things around and earn higher returns on lower amounts of capital. Since the stock has returned a solid 74% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 3 warning signs facing Finetechnix.Ltd that you might find interesting.

While Finetechnix.Ltd 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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