RFHIC (KOSDAQ:218410) Is Reinvesting At Lower Rates Of Return

There are a few key trends to look for if we want to identify the next 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at RFHIC (KOSDAQ:218410) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for RFHIC:

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

0.0039 = ₩1.5b ÷ (₩483b - ₩95b) (Based on the trailing twelve months to December 2024).

Thus, RFHIC has an ROCE of 0.4%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 5.6%.

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 .

What Does the ROCE Trend For RFHIC Tell Us?

When we looked at the ROCE trend at RFHIC, we didn't gain much confidence. Around five years ago the returns on capital were 8.2%, but since then they've fallen to 0.4%. However it looks like RFHIC might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On RFHIC's ROCE

Bringing it all together, while we're somewhat encouraged by RFHIC's reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 66% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

On a final note, we've found 1 warning sign for RFHIC that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.