Returns On Capital - An Important Metric For EXEM (KOSDAQ:205100)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at EXEM (KOSDAQ:205100) so let's look a bit deeper.

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. The formula for this calculation on EXEM is:

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

0.13 = ₩11b ÷ (₩90b - ₩7.4b) (Based on the trailing twelve months to September 2020).

So, EXEM has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Software industry average of 7.7% it's much better.

See our latest analysis for EXEM

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

So How Is EXEM's ROCE Trending?

The trends we've noticed at EXEM are quite reassuring. The data shows that returns on capital have increased substantially over the last four years to 13%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 106%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

All in all, it's terrific to see that EXEM is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 11% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

EXEM does have some risks though, and we've spotted 1 warning sign for EXEM that you might be interested in.

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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