If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Speaking of which, we noticed some great changes in Genesem's (KOSDAQ:217190) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What Is It?
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 Genesem, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = ₩7.7b ÷ (₩84b - ₩31b) (Based on the trailing twelve months to September 2024).
Thus, Genesem has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 6.5% generated by the Semiconductor industry.
See our latest analysis for Genesem
Historical performance is a great place to start when researching a stock so above you can see the gauge for Genesem's ROCE against it's prior returns. If you're interested in investigating Genesem's past further, check out this free graph covering Genesem's past earnings, revenue and cash flow.
What Can We Tell From Genesem's ROCE Trend?
Genesem is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last three years, the ROCE has climbed 67% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
Our Take On Genesem's ROCE
To bring it all together, Genesem has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 169% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.
Genesem does have some risks though, and we've spotted 1 warning sign for Genesem that you might be interested in.
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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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.
About KOSDAQ:A217190
Genesem
Develops, manufactures, and supplies automated equipment for the semiconductor back-end process in South Korea and internationally.
Excellent balance sheet with acceptable track record.
