Can Iones (KOSDAQ:114810) Continue To Grow Its Returns On Capital?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Iones (KOSDAQ:114810) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 Iones:

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

0.061 = ₩9.5b ÷ (₩231b - ₩74b) (Based on the trailing twelve months to September 2020).

Therefore, Iones has an ROCE of 6.1%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 9.8%.

See our latest analysis for Iones

Historical performance is a great place to start when researching a stock so above you can see the gauge for Iones' ROCE against it's prior returns. If you'd like to look at how Iones has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Iones Tell Us?

Shareholders will be relieved that Iones has broken into profitability. The company now earns 6.1% on its capital, because one year ago it was incurring losses. While returns have increased, the amount of capital employed by Iones has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

The Bottom Line

To bring it all together, Iones has done well to increase the returns it's generating from its capital employed. Astute investors may have an opportunity here because the stock has declined 34% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we've found 3 warning signs for Iones that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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