Returns On Capital Signal Tricky Times Ahead For Suresofttech (KOSDAQ:298830)

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. However, after investigating Suresofttech (KOSDAQ:298830), we don't think it's current trends fit the mold of a multi-bagger.

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Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Suresofttech, this is the formula:

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

0.066 = ₩7.9b ÷ (₩162b - ₩43b) (Based on the trailing twelve months to December 2024).

Thus, Suresofttech has an ROCE of 6.6%. On its own, that's a low figure but it's around the 7.5% average generated by the IT industry.

Check out our latest analysis for Suresofttech

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

The Trend Of ROCE

On the surface, the trend of ROCE at Suresofttech doesn't inspire confidence. To be more specific, ROCE has fallen from 17% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Suresofttech's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Suresofttech is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 15% over the last three years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

If you're still interested in Suresofttech it's worth checking out our FREE intrinsic value approximation for A298830 to see if it's trading at an attractive price in other respects.

While Suresofttech isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.