Capital Allocation Trends At RFHIC (KOSDAQ:218410) Aren't Ideal

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. However, after briefly looking over the numbers, we don't think RFHIC (KOSDAQ:218410) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on RFHIC is:

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

0.011 = ₩4.3b ÷ (₩519b - ₩145b) (Based on the trailing twelve months to June 2024).

So, RFHIC has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 5.4%.

View our latest analysis for RFHIC

In the above chart we have measured RFHIC's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for RFHIC .

The Trend Of ROCE

When we looked at the ROCE trend at RFHIC, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 1.1% from 16% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From RFHIC's ROCE

In summary, RFHIC is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 58% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think RFHIC has the makings of a multi-bagger.

If you'd like to know more about RFHIC, we've spotted 3 warning signs, and 2 of them are significant.

While RFHIC 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.