Will Korea Information Certificate Authority (KOSDAQ:053300) Multiply In Value Going Forward?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. With that in mind, the ROCE of Korea Information Certificate Authority (KOSDAQ:053300) looks decent, right now, so lets see what the trend of returns can tell us.

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. Analysts use this formula to calculate it for Korea Information Certificate Authority:

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

0.11 = ₩10b ÷ (₩115b - ₩25b) (Based on the trailing twelve months to September 2020).

Thus, Korea Information Certificate Authority has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Software industry average of 8.5% it's much better.

See our latest analysis for Korea Information Certificate Authority

Historical performance is a great place to start when researching a stock so above you can see the gauge for Korea Information Certificate Authority's ROCE against it's prior returns. If you'd like to look at how Korea Information Certificate Authority has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Korea Information Certificate Authority Tell Us?

While the returns on capital are good, they haven't moved much. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 88% in that time. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

In the end, Korea Information Certificate Authority has proven its ability to adequately reinvest capital at good rates of return. Yet over the last five years the stock has declined 26%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

Korea Information Certificate Authority does have some risks though, and we've spotted 2 warning signs for Korea Information Certificate Authority 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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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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