Should We Be Excited About The Trends Of Returns At YAS (KOSDAQ:255440)?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at YAS (KOSDAQ:255440) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. Analysts use this formula to calculate it for YAS:

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

0.0021 = ₩354m ÷ (₩194b - ₩29b) (Based on the trailing twelve months to September 2020).

Thus, YAS has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 9.8%.

View our latest analysis for YAS

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

What Does the ROCE Trend For YAS Tell Us?

When we looked at the ROCE trend at YAS, we didn't gain much confidence. Over the last three years, returns on capital have decreased to 0.2% from 19% three years ago. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

In Conclusion...

In summary, we're somewhat concerned by YAS' diminishing returns on increasing amounts of capital. Long term shareholders who've owned the stock over the last three years have experienced a 51% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for YAS (of which 1 is potentially serious!) that you should know about.

While YAS 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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