Return Trends At TOPTEC (KOSDAQ:108230) Aren't Appealing

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. With that in mind, the ROCE of TOPTEC (KOSDAQ:108230) looks decent, right now, so lets see what the trend of returns can tell us.

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

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. Analysts use this formula to calculate it for TOPTEC:

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

0.11 = ₩47b ÷ (₩530b - ₩88b) (Based on the trailing twelve months to September 2020).

So, TOPTEC has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 8.7% generated by the Semiconductor industry.

Check out our latest analysis for TOPTEC

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

What Does the ROCE Trend For TOPTEC Tell Us?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 188% in that time. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 17% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

What We Can Learn From TOPTEC's ROCE

To sum it up, TOPTEC has simply been reinvesting capital steadily, at those decent rates of return. However, over the last five years, the stock hasn't provided much growth to shareholders in the way of total returns. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

If you'd like to know more about TOPTEC, we've spotted 3 warning signs, and 2 of them are a bit unpleasant.

While TOPTEC 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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