Is KSIGNLtd (KOSDAQ:192250) Likely To Turn Things Around?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at KSIGNLtd (KOSDAQ:192250) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper 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. To calculate this metric for KSIGNLtd, this is the formula:

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

0.11 = ₩6.4b ÷ (₩68b - ₩9.1b) (Based on the trailing twelve months to September 2020).

Thus, KSIGNLtd has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Software industry average of 7.2% it's much better.

See our latest analysis for KSIGNLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for KSIGNLtd's ROCE against it's prior returns. If you'd like to look at how KSIGNLtd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is KSIGNLtd's ROCE Trending?

The trend of ROCE doesn't look fantastic because it's fallen from 19% five years ago, while the business's capital employed increased by 39%. Usually this isn't ideal, but given KSIGNLtd conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. It's unlikely that all of the funds raised have been put to work yet, so as a consequence KSIGNLtd might not have received a full period of earnings contribution from it.

The Bottom Line On KSIGNLtd's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that KSIGNLtd is reinvesting for growth and has higher sales as a result. However, total returns to shareholders over the last five years have been flat, which could indicate these growth trends potentially aren't accounted for yet by investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

One more thing: We've identified 3 warning signs with KSIGNLtd (at least 1 which is concerning) , and understanding these would certainly be useful.

While KSIGNLtd 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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