Returns On Capital At SBI FinTech Solutions (KOSDAQ:950110) Paint An Interesting Picture

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. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of SBI FinTech Solutions (KOSDAQ:950110) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding 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. The formula for this calculation on SBI FinTech Solutions is:

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

0.15 = ₩15b ÷ (₩310b - ₩208b) (Based on the trailing twelve months to September 2020).

Therefore, SBI FinTech Solutions has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the IT industry average of 11% it's much better.

Check out our latest analysis for SBI FinTech Solutions

Above you can see how the current ROCE for SBI FinTech Solutions compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From SBI FinTech Solutions' ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has employed 215% more capital in the last five years, and the returns on that capital have remained stable at 15%. 15% is a pretty standard return, and it provides some comfort knowing that SBI FinTech Solutions has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, SBI FinTech Solutions' current liabilities are still rather high at 67% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

In the end, SBI FinTech Solutions has proven its ability to adequately reinvest capital at good rates of return. On top of that, the stock has rewarded shareholders with a remarkable 162% return to those who've held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

SBI FinTech Solutions does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is a bit concerning...

While SBI FinTech Solutions 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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