Returns On Capital Signal Tricky Times Ahead For INFOvine (KOSDAQ:115310)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at INFOvine (KOSDAQ:115310) and its ROCE trend, we weren't exactly thrilled.

What is 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. To calculate this metric for INFOvine, this is the formula:

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

0.089 = ₩8.1b ÷ (₩94b - ₩3.0b) (Based on the trailing twelve months to December 2020).

So, INFOvine has an ROCE of 8.9%. In absolute terms, that's a low return but it's around the Software industry average of 8.1%.

See our latest analysis for INFOvine

Historical performance is a great place to start when researching a stock so above you can see the gauge for INFOvine's ROCE against it's prior returns. If you'd like to look at how INFOvine 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 INFOvine Tell Us?

On the surface, the trend of ROCE at INFOvine doesn't inspire confidence. Around five years ago the returns on capital were 17%, but since then they've fallen to 8.9%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

To conclude, we've found that INFOvine is reinvesting in the business, but returns have been falling. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a final note, we found 3 warning signs for INFOvine (1 is a bit concerning) you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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