Returns On Capital At QRT (KOSDAQ:405100) Have Stalled

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Having said that, from a first glance at QRT (KOSDAQ:405100) 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)?

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. To calculate this metric for QRT, this is the formula:

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

0.0071 = ₩857m ÷ (₩130b - ₩8.9b) (Based on the trailing twelve months to September 2023).

So, QRT has an ROCE of 0.7%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 7.2%.

View our latest analysis for QRT

Above you can see how the current ROCE for QRT compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering QRT for free.

What Can We Tell From QRT's ROCE Trend?

There hasn't been much to report for QRT's returns and its level of capital employed because both metrics have been steady for the past . Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if QRT doesn't end up being a multi-bagger in a few years time.

The Bottom Line

In summary, QRT isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Yet to long term shareholders the stock has gifted them an incredible 203% return in the last year, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a final note, we found 5 warning signs for QRT (2 make us uncomfortable) 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.