What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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 YC (KOSDAQ:232140) and its trend of ROCE, we really liked what we saw.
Understanding Return On Capital Employed (ROCE)
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. The formula for this calculation on YC is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.034 = ₩16b ÷ (₩531b - ₩52b) (Based on the trailing twelve months to June 2024).
Thus, YC has an ROCE of 3.4%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 5.4%.
See our latest analysis for YC
In the above chart we have measured YC's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for YC .
So How Is YC's ROCE Trending?
We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 3.4%. The amount of capital employed has increased too, by 207%. So we're very much inspired by what we're seeing at YC thanks to its ability to profitably reinvest capital.
One more thing to note, YC has decreased current liabilities to 9.7% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that YC has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.
The Bottom Line On YC's ROCE
All in all, it's terrific to see that YC is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if YC can keep these trends up, it could have a bright future ahead.
On a final note, we've found 1 warning sign for YC 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.
About KOSDAQ:A232140
YC
Engages in the development, manufacture, and sale of inspection equipment for semiconductor memories in South Korea and internationally.
Flawless balance sheet with high growth potential.
