Investors Met With Slowing Returns on Capital At Samji Electronics (KOSDAQ:037460)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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, the ROCE of Samji Electronics (KOSDAQ:037460) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Samji Electronics:

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

0.12 = ₩48b ÷ (₩613b - ₩203b) (Based on the trailing twelve months to December 2020).

Thus, Samji Electronics has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Communications industry average of 4.9% it's much better.

View our latest analysis for Samji Electronics

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 want to delve into the historical earnings, revenue and cash flow of Samji Electronics, check out these free graphs here.

So How Is Samji Electronics' ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 131% in that time. 12% is a pretty standard return, and it provides some comfort knowing that Samji Electronics has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a side note, Samji Electronics has done well to reduce current liabilities to 33% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

In Conclusion...

In the end, Samji Electronics has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 138% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Samji Electronics could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While Samji Electronics 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. 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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