Should We Be Excited About The Trends Of Returns At INFOvine.co.Ltd (KOSDAQ:115310)?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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.co.Ltd (KOSDAQ:115310) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for INFOvine.co.Ltd:

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

0.093 = ₩8.4b ÷ (₩94b - ₩3.6b) (Based on the trailing twelve months to September 2020).

So, INFOvine.co.Ltd has an ROCE of 9.3%. In absolute terms, that's a low return, but it's much better than the Software industry average of 7.7%.

Check out our latest analysis for INFOvine.co.Ltd

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 INFOvine.co.Ltd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From INFOvine.co.Ltd's ROCE Trend?

When we looked at the ROCE trend at INFOvine.co.Ltd, we didn't gain much confidence. To be more specific, ROCE has fallen from 17% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. 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.

Our Take On INFOvine.co.Ltd's ROCE

To conclude, we've found that INFOvine.co.Ltd is reinvesting in the business, but returns have been falling. And with the stock having returned a mere 6.0% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

INFOvine.co.Ltd does have some risks, we noticed 3 warning signs (and 1 which is significant) we think you should know about.

While INFOvine.co.Ltd 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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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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