Returns On Capital At Nice Information & Telecommunication (KOSDAQ:036800) Paint An Interesting Picture

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Nice Information & Telecommunication (KOSDAQ:036800) and its ROCE trend, we weren't exactly thrilled.

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 Nice Information & Telecommunication is:

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

0.14 = ₩34b ÷ (₩734b - ₩482b) (Based on the trailing twelve months to September 2020).

So, Nice Information & Telecommunication has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 11% generated by the IT industry.

Check out our latest analysis for Nice Information & Telecommunication

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

So How Is Nice Information & Telecommunication's ROCE Trending?

When we looked at the ROCE trend at Nice Information & Telecommunication, we didn't gain much confidence. Around four years ago the returns on capital were 34%, but since then they've fallen to 14%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

Another thing to note, Nice Information & Telecommunication has a high ratio of current liabilities to total assets of 66%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Nice Information & Telecommunication's ROCE

While returns have fallen for Nice Information & Telecommunication in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. In light of this, the stock has only gained 11% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

One more thing to note, we've identified 1 warning sign with Nice Information & Telecommunication and understanding it should be part of your investment process.

While Nice Information & Telecommunication 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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