Will the Promising Trends At Raonsecure (KOSDAQ:042510) Continue?

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Raonsecure (KOSDAQ:042510) so let's look a bit deeper.

Understanding 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 Raonsecure:

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

0.028 = ₩962m ÷ (₩48b - ₩14b) (Based on the trailing twelve months to June 2020).

So, Raonsecure has an ROCE of 2.8%. Ultimately, that's a low return and it under-performs the Software industry average of 8.6%.

See our latest analysis for Raonsecure

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're interested in investigating Raonsecure's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Raonsecure's ROCE Trend?

Raonsecure has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 2.8% on its capital. And unsurprisingly, like most companies trying to break into the black, Raonsecure is utilizing 219% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line

In summary, it's great to see that Raonsecure has managed to break into profitability and is continuing to reinvest in its business. Considering the stock has delivered 8.7% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing: We've identified 2 warning signs with Raonsecure (at least 1 which is concerning) , and understanding them would certainly be useful.

While Raonsecure isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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