We Like These Underlying Return On Capital Trends At GalaxiaMoneytreeLtd (KOSDAQ:094480)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Speaking of which, we noticed some great changes in GalaxiaMoneytreeLtd's (KOSDAQ:094480) returns on capital, so let's have a look.

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. The formula for this calculation on GalaxiaMoneytreeLtd is:

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

0.072 = ₩7.5b ÷ (₩262b - ₩158b) (Based on the trailing twelve months to December 2020).

Therefore, GalaxiaMoneytreeLtd has an ROCE of 7.2%. In absolute terms, that's a low return and it also under-performs the IT industry average of 10%.

View our latest analysis for GalaxiaMoneytreeLtd

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'd like to look at how GalaxiaMoneytreeLtd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is GalaxiaMoneytreeLtd's ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 7.2%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 121%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a side note, GalaxiaMoneytreeLtd's current liabilities are still rather high at 60% of total assets. 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.

The Bottom Line On GalaxiaMoneytreeLtd's ROCE

To sum it up, GalaxiaMoneytreeLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 69% return over the last five years. In light of that, we think it's worth looking further into this stock because if GalaxiaMoneytreeLtd can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 3 warning signs we've spotted with GalaxiaMoneytreeLtd (including 1 which can't be ignored) .

While GalaxiaMoneytreeLtd 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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