Investors Will Want Secuve's (KOSDAQ:131090) Growth In ROCE To Persist

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Secuve (KOSDAQ:131090) looks quite promising in regards to its trends of return on capital.

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. The formula for this calculation on Secuve is:

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

0.11 = ₩4.6b ÷ (₩46b - ₩4.3b) (Based on the trailing twelve months to September 2023).

Therefore, Secuve has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Software industry average of 5.0% it's much better.

See our latest analysis for Secuve

Historical performance is a great place to start when researching a stock so above you can see the gauge for Secuve's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Secuve.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Secuve. The data shows that returns on capital have increased substantially over the last five years to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 76% more capital is being employed now too. So we're very much inspired by what we're seeing at Secuve thanks to its ability to profitably reinvest capital.

Our Take On Secuve's ROCE

In summary, it's great to see that Secuve can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Given the stock has declined 33% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know more about Secuve, we've spotted 3 warning signs, and 2 of them are significant.

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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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.