Will The ROCE Trend At Insung Information (KOSDAQ:033230) Continue?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Insung Information's (KOSDAQ:033230) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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 Insung Information is:

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

0.076 = ₩4.4b ÷ (₩179b - ₩122b) (Based on the trailing twelve months to September 2020).

Thus, Insung Information has an ROCE of 7.6%. In absolute terms, that's a low return and it also under-performs the IT industry average of 11%.

View our latest analysis for Insung Information

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Insung Information, check out these free graphs here.

What Does the ROCE Trend For Insung Information Tell Us?

Insung Information has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 7.6% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

On a separate but related note, it's important to know that Insung Information has a current liabilities to total assets ratio of 68%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Insung Information's ROCE

In summary, we're delighted to see that Insung Information has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Astute investors may have an opportunity here because the stock has declined 36% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

Insung Information does have some risks though, and we've spotted 3 warning signs for Insung Information that you might be interested in.

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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