The Returns At YIK (KOSDAQ:232140) Provide Us With Signs Of What's To Come

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating YIK (KOSDAQ:232140), we don't think it's current trends fit the mold of a multi-bagger.

What is 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. To calculate this metric for YIK, this is the formula:

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

0.06 = ₩13b ÷ (₩306b - ₩88b) (Based on the trailing twelve months to September 2020).

Thus, YIK has an ROCE of 6.0%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 9.7%.

View our latest analysis for YIK

Historical performance is a great place to start when researching a stock so above you can see the gauge for YIK's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of YIK, check out these free graphs here.

What Does the ROCE Trend For YIK Tell Us?

We weren't thrilled with the trend because YIK's ROCE has reduced by 76% over the last three years, while the business employed 158% more capital. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. YIK probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

What We Can Learn From YIK's ROCE

While returns have fallen for YIK in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. These growth trends haven't led to growth returns though, since the stock has fallen 25% over the last three years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

YIK does have some risks, we noticed 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

While YIK 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. 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.
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