Returns Are Gaining Momentum At Openbase (KOSDAQ:049480)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Openbase (KOSDAQ:049480) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Openbase, this is the formula:

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

0.066 = ₩6.6b ÷ (₩149b - ₩49b) (Based on the trailing twelve months to March 2024).

Therefore, Openbase has an ROCE of 6.6%. On its own, that's a low figure but it's around the 8.3% average generated by the IT industry.

Check out our latest analysis for Openbase

Historical performance is a great place to start when researching a stock so above you can see the gauge for Openbase's ROCE against it's prior returns. If you're interested in investigating Openbase's past further, check out this free graph covering Openbase's past earnings, revenue and cash flow.

The Trend Of ROCE

The fact that Openbase is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 6.6% which is a sight for sore eyes. Not only that, but the company is utilizing 43% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

Our Take On Openbase's ROCE

To the delight of most shareholders, Openbase has now broken into profitability. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing, we've spotted 1 warning sign facing Openbase that you might find interesting.

While Openbase 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. 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.