Should You Be Excited About KineMaster's (KOSDAQ:139670) Returns On Capital?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at KineMaster's (KOSDAQ:139670) look very promising so lets take 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. Analysts use this formula to calculate it for KineMaster:

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

0.27 = ₩4.3b ÷ (₩18b - ₩1.2b) (Based on the trailing twelve months to September 2020).

Therefore, KineMaster has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Software industry average of 7.7%.

See our latest analysis for KineMaster

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're interested in investigating KineMaster's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

It's great to see that KineMaster has started to generate some pre-tax earnings from prior investments. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 27% on their capital employed. Additionally, the business is utilizing 35% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. KineMaster could be selling under-performing assets since the ROCE is improving.

Our Take On KineMaster's ROCE

From what we've seen above, KineMaster has managed to increase it's returns on capital all the while reducing it's capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 1 warning sign with KineMaster and understanding it should be part of your investment process.

KineMaster is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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